Considering a private personal loan in Singapore can be a smart move for many reasons. In Singapore, most private personal loans you’ll find are actually unsecured loans, and unsecured loans are ideal for individuals who do not own significant assets or are unwilling to risk their property or properties.
Besides evaluating the risk of offering some form of collateral when taking up loans, considering the short-term and long-term options can get a little tricky at times. Let’s take a look at some of the key factors to note before making a decision.
What are unsecured loans?
With unsecured loans, you do not need to put up any collateral when borrowing from a bank. However, you’ll need to furnish your income proof — personal loans without income proof do not exist in Singapore.
Some of the banks offering unsecured personal loans include DBS, Standard Chartered, UOB and OCBC. Without the requirement for collateral, the application process becomes simpler and faster, making it an attractive option for those who need quick access to funds.
On the flip side, ‘secured loans’ require you to offer up a valuable asset as collateral, which the lender can seize if you can’t pay back the loan. While secured loans often offer lower interest rates due to the reduced risk for the lender, they pose a greater risk to the borrower.
If you fail to repay the loan, you could lose your collateral. Therefore, unsecured loans provide a safer alternative for those who want to avoid the risk of losing personal property and still get the financial support they need.
What can happen if you don’t repay your unsecured loans in Singapore?
Defaulting on unsecured loans in Singapore can have severe financial consequences. Late payments can quickly escalate your debt due to added fees and interest. If you continue to miss payments, your debt may be sold to a collection agency, damaging your credit score and future borrowing ability.
In the worst case, legal action could be taken, leading to wage garnishment or property liens. To prevent these serious outcomes, it’s essential to address financial challenges promptly and seek professional help if needed, soonest.
How do unsecured loans work?
If unsecured loans don’t require collateral, how do lenders decide who qualifies for one? Let’s look at some key features of unsecured loans in Singapore and understand how the borrower-lender relationship works in this context.
Lower loan amount
When comparing between secured and unsecured loans, unsecured loans typically comprise smaller loan amounts than secured loans as there’s a higher risk for banks and licensed lenders. Since there’s no collateral (like a house or car) to back up the loan, if the borrower defaults, the loan provider has no asset to recoup their losses.
To mitigate this risk, lenders typically offer smaller loan amounts for unsecured loans. This way, if the borrowers default, the potential losses for the lenders are smaller.
Higher interest rates
Banks and licensed lenders don’t have anything to hold onto if you don’t pay back an unsecured loan, so they take a bigger gamble. To cover their risk, they charge higher interest rates. It’s like insurance — the riskier it is, the more it costs.
Healthy credit score
Your credit score is like your financial report card. Banks check it to see if you’re a good risk. A good score means higher chances of getting approved and maybe even a better interest rate. But if your score isn’t great, it might be harder to get a loan.
If you have a less-than-satisfactory credit score, the chances of getting your personal loan application rejected would naturally be higher.
Fixed repayment period
For the most part, unsecured loans come with a fixed repayment period, known as the loan tenure. Borrowers are expected to repay their loan in full —meaning principal loan amount along with accrued interest— within a specific timespan.
Are unsecured loans in Singapore short or long-term?
Unsecured loans in Singapore can be both short-term and long-term.
Short-term unsecured loans
Ideal for immediate cash needs, short-term loans are typically offered by licensed lenders. These loans usually last 3 to 12 months and can be a lifesaver in emergencies. However, they often come with higher interest rates. Careful budgeting is crucial to avoid debt traps.
Long-term unsecured loans
For larger or longer-term financial goals, long-term unsecured loans are a better fit. Banks commonly offer these loans with repayment periods of 1 to 7 years. Featuring lower interest rates than short-term options, they provide more flexibility for borrowers altogether.
What are some common unsecured loans available in Singapore?
There are many other options when it comes to unsecured private loans. Let’s take a closer look at these different types to see which might work for you.
#1 Personal Loan
A personal loan is a fixed-term loan typically used for diverse financial needs. Offering lower interest rates compared to other unsecured loan options, it provides a structured repayment plan.
You can usually borrow up to 4, 6, or 10 times your monthly income, depending on how much you earn annually and where you’re borrowing from. While there’s usually a penalty for early repayment, personal loans often offer more competitive interest rates.
#2 Credit Card Instalment Plan
Designed for big-ticket purchases, credit card instalment plans allow you to spread the cost over time. The attractive feature is the often 0% interest rate, but this typically comes with a fixed repayment period. The amount you can borrow depends on your unutilised credit limit.
#3 Debt Consolidation Plan (DCP)
Exclusively for Singaporean citizens and PRs, a Debt Consolidation Plan consolidates credit card bills, personal loans, and personal lines of credit, etc into a single loan.
Interest rates are typically lower than your existing debts’, and repayment terms vary depending on the bank or financial institution.
Note that DCP has strict eligibility criteria; it is designed for folks who have unsecured debts that go beyond 12 times their monthly income.
#4 Line of Credit
If you need flexible, occasional access to cash, a line of credit might be suitable. It’s like a revolving loan that you can use as needed, up to a certain limit. Interest rates are generally higher than personal loans, and you’ll only pay interest on the amount you borrow. It usually comes with fees, though!
#5 Balance Transfer
Looking to consolidate your credit card debts? A balance transfer might help. By moving existing debts to a new credit card that allows for balance transfer, you can often benefit from lower interest rates, sometimes even 0% for a limited period. However, balance transfer limits usually apply, and there might be fees involved.
What are the pros and cons of unsecured loans?
| Pros | Cons | |
| Application & Eligibility |
|
Banks or lenders may have stricter criteria, including high credit score requirements and income verification. |
| Interest rates | Interest rates of unsecured personal loans are typically more favourable than many other types of loans. |
|
| Borrowing limit | Lower risks of over-borrowing for borrowers. | Unsecured loans usually offer lower borrowing limits as compared to secured loans. |
| Collateral | Since no collateral is required, you won’t risk losing your assets as a borrower if you default on the loan. | Banks or lenders have nothing of value to claim against as there is no collateral involved, in the situation the borrower fails to meet the legal obligations to pay the debt. |
| Credit score | Timely payments can help build a better credit score over time. | Late payments or defaults can negatively affect your credit score. |
| Use of funds | The loan can be used flexibly for a variety of purposes, such as debt consolidation, emergencies, or personal expenses. | Some borrowers may be over-reliant on these financial products to get by, especially since unsecured loans are fairly easy to attain without risking one’s property. |
Where can you get unsecured loans in Singapore?
The more renowned and reliable ones in Singapore are:
- Standard Chartered CashOne Personal Loan
- HSBC Instalment Plan (Personal Loan)
- Citi Quick Cash
- UOB Personal Loan
- CIMB CashLite Personal Loan
- DBS Personal Loan
- POSB Personal Loan
- Maybank CreditAble Term Loan
There are more, of course, but these are the most established ones. Most of the banks offer the standard unsecured loans we talked about above — DCPs, personal lines of credit, credit card instalment plans, etc. — but with different interest rates, maximum personal loan amounts, tenures and fees involved.
To illustrate, as of time of writing, the DBS personal loan provides a fast approval process with rates starting from 2.68% p.a.and just 1% processing fee, while HSBC’s Instalment Plan offers competitive rates, starting from 2.92% p.a. with flexible repayment terms up to 7 years. Such options are versatile and can be used for various purposes, such as debt consolidation, home renovations, or even funding a wedding.
Credit cards are another form of unsecured loan, providing a revolving line of credit that can be used for everyday purchases or emergencies, while personal lines of credit serve as flexible loan options that allow you to borrow up to a pre-approved limit and only pay interest on the amount you use.
How to get the best unsecured personal loan in Singapore?
In order to secure the best unsecured personal loan, it’s essential to understand that banks and lenders evaluate several key factors based on your financial profile. These include:
Credit score: A higher credit score improves your chances of obtaining favourable loan terms and lower interest rates.
Income level: Lenders assess your income to determine your ability to repay the loan. Higher income may qualify you for larger loan amounts and better terms.
Employment stability: A stable job history or long-term employment can make you a more attractive borrower.
Existing debt: Lenders review your current debt obligations to ensure you can manage additional debt responsibly.
Loan amount and tenure: The amount you wish to borrow and the duration of the loan can impact the interest rate and repayment conditions.
Financial history: Lenders look at your past financial behaviour, including timely payments and financial management skills.
In a nutshell…
Whether it’s a personal loan for a major expense, a credit card for everyday purchases, a personal line of credit for flexibility, or a student loan for education, Singapore’s banks and licensed lenders offer a variety of options to suit different requirements.
Thus, it is always wise to compare the interest rates, fees, and terms through reliable platforms such as Personal Loan Finder before making a decision to ensure you get the best deal possible.
Contact us today, we’ll be more than happy to provide a loan quote and assist in your search for a trusted loan provider.
About the Author
Founded in 2014, Personal Loan Finder resolves to educate users on all things related to personal loans in Singapore. Everyone deserves the right to make informed decisions, especially where money is concerned.
