Generally, loans are divided into secured and unsecured loans. With unsecured loans, you will get the loan based on your ability to repay and you do not have to submit any collateral. Since there is no fundamental asset safeguarding the loan, the interest rates charged are usually higher than secured loans. A personal loan is the most common form of unsecured loan and if you are eligible to apply for it, you can use it for any purpose. If you default on a personal loan the consequences are not immediate, unlike home loans or car loans. Let’s take a look of what types of unsecured loans are available.
A personal line of credit or a credit line is a fund that is set aside for you to use when the need arises. Just like credit cards, a personal line of credit also has a maximum limit and you will be charged an annual fee. It is quite popular among people as the payments can be flexible.
For instance:The personal line of credit offered by HSBC gives you additional cash of up to 6 times your monthly salary with one of the lowest interest rates. Unlike personal loans, you will get the money from a credit line through a complimentary chequebook, through funds transfer, using your debit card, or via an ATM card. Like personal loans, you can use these funds immediately after it gets approved.
A charge card offers you the option of spending money without any credit limit. These cards have numerous similarities with credit cards. However, charge cards have better perks than credit cards and credit cards are much easier to obtain as charge cards are often given to people with high incomes and high credit scores. Additionally, there is no variable repayment for charge cards. The annual fee associated with charge cards is also very high.
For Example:With an American Express Personal Card, you will earn 2 Membership Rewards points for every S$1.60 spent. Other special perks available with this card include help when a member needs the services of an English-speaking lawyer or doctor anywhere in the world 24/7.
A credit card is the most commonly used unsecured loan in Singapore. There are credit cards targeted specifically for students as well as for the high-net-worth individuals. These cards will have features specific to the needs of the targeted group. Credit cards offer rewards in the form of cashback, air miles, and points, making them popular among the general population. However, if you fail to pay the bill on time, you will have to pay an additional amount as per the interest rate applicable that could take away any advantage you get from the rewards.
For Example:The Citi PremierMiles Visa Card is an air miles credit card that will help you earn Citi Miles when you use it on eligible spends. You can redeem these miles on a wide range of airlines, hotel bookings, merchandise from the rewards catalogue, etc. The miles that you earn will never expire. It makes this card suitable for people who travel frequently.
With an overdraft facility, you will be able to withdraw cash and write cheques from your current account up to an approved limit. With unsecured overdraft, you will not have to pledge your assets as security. Currently, banks are allowed to grant an unsecured credit of up to four times your monthly income, if your annual income is at least S$30,000. This includes grant on credit cards and other unsecured credit facilities. If your annual income is between S$20,000 and S$30,000, you will be granted a credit limit of twice your monthly income.
For Example:With the Maybank overdraft facility, you will be able to draw more funds than what you have in your current account, up to a certain limit. The benefits offered by Maybank overdraft facility include easy access to funds in times of need, flexibility in managing cash flow, and more
Personal loans are among the most popular unsecured loans in Singapore as it can be procured to fulfil your urgent needs. Some of the common reasons why people opt for a personal loan are:
Personal loans in Singapore are offered for a tenure between 1 and 5 years, however, with HSBC’s Personal Loan, you can choose a tenure of up to 7 years. You can choose from fixed and flexible monthly instalment payments. Interest rates on personal loans are fixed and generally range from 8% p.a. to 15% p.a. Some banks offer instant approvals on applications, usually within the same day. Some even offer 1 minute approval in principle on their personal loans. Personal loans also require minimal documentation and more often than not, existing customers of the bank can apply for a loan without submitting any documents.
In Singapore, with a renovation loan, you can get enough money to construct a bigger kitchen or give your home a total makeover. You can either opt for a monthly interest option or a flat rate. Flat rates do not change throughout the tenure of the loan while monthly interest fluctuates each month but often tend to be lower. Renovation loans do not cover appliances and furniture. Generally, you will get a maximum loan amount of six times your monthly income and the tenure ranges from 1 to 5 years.
For Example:POSB is one of the few banks in Singapore that offers a renovation loan. You will get an amount of up to S$30,000 or six times your monthly salary, the lower of the two. You will get this loan for a flat interest rate of 2.31% p.a. with a tenure of up to five years. With this loan you will also get insurance coverage.
Education loan is the loan you take for the purpose of financing your higher/tertiary education. There are banks in Singapore that offer interest-free education loans where you do not have to pay any interest during your time in the university. Even after graduating, the interest rate applied is much lower than personal loans. Since university students are usually unemployed, banks often require a guarantor with a stable income for the loan approval. Education loans are offered for studies in Singapore and overseas, however, the loan tenure is often higher for overseas education. In Singapore, university students as well as polytechnic students can apply for an education loan. For local studies, the minimum repayment on the loan starts from S$100 per month.
A payday loan is a short-term personal loan that can be obtained without any hassles if you fulfil the eligibility criteria. You will get the loan quickly unlike traditional bank loans. It is commonly known as a salary advance loan or a cash advance loan. Also, you have to submit only a few of your personal documents and a poor credit score will not affect your chances.
You can apply for this loan even if you have a low income. However, when you apply for payday loans, you must ensure that the lender from whom you are borrowing is authorised by the Registry of Money Lenders.
To get the initial funding for their businesses, entrepreneurs often take the help of others. With the help of peer-to-peer lending platforms, businesses manage to get in touch with public investors who lend money to them and get returns for their investments based on the agreed rates. This platform is ideal for businesses that lack collateral, do not have financial history, and/or have a dormant credit history.
Unsecured loans have the following advantages:
Unsecured loans have the following disadvantages:
When it comes to lending, creditors always look for an assurance of getting their money back. Often when you are looking for lenders, the first thing that you need to take care of is your credit score and credit history. With a decent credit history, you have a much better chance of getting a loan, especially when the loan amount is not large. For loans like auto loan or home loan, banks will require a collateral. Banks will often hold the title until the loan amount is repaid in order to recover the money in case of default. In other words, loans with the backing of a collateral are known as secured loans while loans issued without collateral are known as unsecured loans.
Personal loans and credit cards are the most commonly used forms of unsecured loans. Cardholders do not have to provide any collateral to get approval. The issuer will not ask for any guarantee and will only check your employment status, outstanding debts, annual income, and credit history. Your assets will not be seized if you fail to repay your instalments. However, your credit score will surely take a hit in case of late/missed payments. Interest rates are higher as they carry more risk and tenures are shorter (maximum 7 years), when compared to secured loans.
When it comes to a secured loan such as a car loan or a housing loan, the lender has the loan secured by the car or the house and they can seize in case you fail to repay the loan amount. In case of secured loans, lenders will enforce restrictions on the sale of such collateral before the loan is repaid in full, to make sure that the guarantee is not irretrievable. The asset used as a collateral to get a secured loan cannot be sold without the lender’s permission. Hence, you must make sure the money that you borrow is paid back in full, together with other charges and interest within the loan tenure. Interest rates are much lower when compared to unsecured loans as they are backed by collateral and tenures can extend up to 35 years (for home loans).
Since lenders do not ask for a collateral when offering an unsecured loan, they often carry out a thorough background check to make sure you are dependable enough to be given a loan. Your annual income is one factor that plays a huge role. If the lender feels that your annual income is not enough, they can reject your application. Therefore, before you apply for a loan, make sure you fulfil the income criteria.
Current and Past Debts
Before granting approval for your unsecured loan, the lender will take into consideration your past and current debts. The lender will find out the amount you took as credit and the time you took to repay. In case you currently have multiple debts, your average obligations will be considered. So, your approval of an unsecured loan may get influenced if you had multiple credits in the past and have failed to pay those on time.
To make sure that your applications for unsecured loans are not rejected, you must stabilise your outstanding balance. Outstanding balance refers to the ratio of your unsettled credit to your credit limit. To ensure that lenders do not think that you are incapable of repaying your loan, you must not keep your outstanding balance at zero. It is ideal to keep the ratio less, but not zero.
A lender will always check your ability to repay the unsecured loan before giving the approval. If you are not employed at the time of applying for the loan, most lenders are likely to reject your loan application.
Your credit score is one of the biggest factors that can influence your unsecured loan application. Since the lender has no collateral to secure their money, a poor credit score will have a negative impact and will lower your chances of getting the loan. The probability of getting a loan will also be influenced if you are new to credit. You can start with a credit card and pay the bills on time over a period to build your score.
Often people think that defaulting on an unsecured loan will not have any consequences as there are no collaterals that the banks can seize. However, there are other consequences of defaulting on unsecured loans that may have a much larger impact. Some of the consequences include:
Difficulty in Finding Employment
Once you have defaulted on your loan, it will be registered on your credit report. If you have made no effort to settle it, the default will stay on your report for an indefinite period of time. However, if you have made an effort to settle your debts with the help of counsellors, your partial defaults may be taken off from your report. Potential employers these days may request for your credit report and many of them have strict policies on not hiring people with abysmal credit scores on account of multiple defaults because it shows a lack of commitment.
You May Have to Face Legal Actions
If your lender feels that you are entirely capable of paying off your debts and you have simply chosen to ignore it, you are likely to face legal actions as you are legally obliged to settle your debts. You will initially be given a warning if you have not taken any action in 30 days, after which you may have to go to a court and settle the matter legally.
Money in Your Account Might be Seized
If you have taken a loan from the bank where you have your savings account and you have funds in that account, there are situations when they can seize your account and use the money toward paying off your debt. This may happen when you fail to take any action even after constant reminders from the bank.
No Access to Other Loans
If you have defaulted on open credit lines or you fail to settle your existing debts, you will not be approved on future loans, no matter how small or big. Every time you send in an application for a loan, the issuer will look at your credit report which will include all your past borrowings and repayments. On finding that you have failed to make payments on your previous credit lines, your issuer will, in most cases, reject your loan application.
You should opt for an unsecured loan because of the following reasons:
You can opt for an unsecured loan in the following circumstances:
However, you should avoid applying for a loan to fulfil your worldly desires such as purchasing an expensive car or a TV.
|Bank||Personal Loan Product|
|HSBC||HSBC’s Debt Consolidation Loan HSBC’s Personal Line of Credit HSBC’s Personal Loan|
|BOC||BOC $martLoan BOC Debt Consolidation Plan (DCP) BOC MoneyPlus Term Loan BOC MoneyPlus Line of Credit BOC MoneyPlus Fund Transfer BOC Overdraft Facility|
|Maybank||Maybank CreditAble Maybank CreditAble Term Loan Maybank CreditAble Funds Transfer Maybank Debt Consolidation Plan|
|Citibank||Citi Personal Loan Citi Debt Consolidation Plan Citi Ready Credit|
|CIMB||CIMB CashLite CIMB Portfolio Financing CIMB Debt Consolidation Plan|
|POSB||POSB Personal Loan|
|UOB||UOB CashPlus UOB Fund Transfer UOB Personal Loan UOB Debt Consolidation Plan|
|DBS||DBS Personal Loan DBS Debt Consolidation Plan DBS CashLine|
|Standard Chartered||Standard Chartered CashOne Standard Chartered Debt Consolidation Plan|
|OCBC||OCBC EasiCredit OCBC ExtraCash Loan OCBC Debt Consolidation Plan OCBC Secured Overdraft|