Personal loans can help borrowers get much-needed cash to tide them through financial difficulties. In fact, a personal loan helps with many situations, from purchasing big-ticket items to repairing a vehicle. Are you shopping for a loan and wondering if there is a secured personal loan in Singapore? Read the article below to learn more about the difference between a secured and unsecured loan and how a secured personal loan works.
What is an unsecured loan?
Unsecured loans do not require collateral (e.g. home, car, jewellery). Therefore, a lender cannot seize their assets in order to recoup any losses if a borrower defaults or is unable to repay their loan.
An unsecured loan can be a term loan or a revolving loan. A personal loan is a type of term loan; borrowers make a set number of repayments over an agreed period of time (i.e. the loan tenure).
The bank’s appraisal of your creditworthiness —or ability to repay— is influenced by factors like your payment history and current loan commitments. The better your credit score and higher your income, the more likely you’ll be granted a bigger loan amount if and when you need the loan.
Read this next: Things you can do to improve your credit score.
What is a secured loan?
A secured loan in Singapore requires assets to be pegged as collateral to the loan. Aside from pledging your home, vehicle or high-value jewellery you own, sometimes a fixed sum of money can be used as collateral as well.
Taking out a secured loan means that if you default on any of your payments, your loan provider has the right to seize your collateral and sell it in order to reclaim what you owe. Home loans and car loans are common examples of secured loans in Singapore.
Personal loans are unsecured loans; there’s no need to pledge collateral in exchange for obtaining the loan. In case you’re wondering, a personal loan is an all-purpose loan — there’s no need to disclose what you’d be using the loan for.
Banks and money lenders offer personal loans. This amount must be repaid in equal monthly instalments over the loan term (i.e. regular equal payments spread over months or years, depending on the loan tenure). Major banks in Singapore offer loan tenures ranging from 1 to 7 years while most licensed money lenders offer loan tenures ranging from 3 to 12 months.
How much can you borrow on a personal loan?
Most banks allow borrowers to borrow 4 to 6 times their monthly salary if they make less than $120,000 a year. Over-$120,000 earners can borrow 8 to 10 times their monthly income.
Your actual loan amount may or may not be the maximum derived from your monthly earnings. The bank considers your credit history, income, and existing credit facilities, too.
What is the legal loan limit for unsecured loans in Singapore?
There are rules on unsecured credit that you should know about. From 1 June 2019, the unsecured loan limit in Singapore is 12 times your monthly salary. Before applying for several bank personal loans, be aware that laws prohibit borrowers from taking on too much debt.
Before approving your personal loan application, banks will check for the following criteria:
- Your total unsecured debt is still within the unsecured borrowing limit for 3 consecutive months
- Whether or not you’re timely in your credit card or unsecured loan payments
- Your creditworthiness as seen from your credit report from Credit Bureau Singapore
If you exceed the borrowing limit for 3 consecutive months, you will not be able to apply for a new credit card, boost your credit limit, or take out more unsecured loans.
You can’t use your credit card or unsecured credit facility if you’re 60 days late on your payment. Banks will also remind you how much debt you’ll accrue if you pay the minimum each month or don’t make any payment in the next 6 months.
These measures are intended to deter long-term dependence on unsecured credit, such as personal loans, and protect borrowers from accumulating too much debt that they can’t pay off or even obsessing over their debts
Do secured personal loans exist?
Yes, secured personal loans exist. Two excellent examples are savings-secured loans and pawn shop loans. How does a secured personal loan work, you may ask?
For secured loans, you’ll have to pledge assets such as your savings, jewellery or luxury watches as collateral. If you’re taking up a pawn shop loan for example, you can bring in a valuable asset, such as a gold ring, gold bangle or designer watch, and the loan amount will be determined after your asset has been evaluated.
A savings-secured loan is an option when you need money but don’t have anything of value to offer as collateral. You’ll be pledging your savings as collateral, but don’t worry, you will not lose them. You can still keep your savings in the bank, earn interest, and back your loan at the same time.
Conclusion: Are secured loans better than unsecured loans?
Secured loans tend to have lower interest rates, extended repayment periods and larger loan amounts, but you have to pledge a valuable asset as collateral and risk losing it if you can’t pay back the loan.
Naturally, unsecured loans are more popular among borrowers as they don’t pose any risk to them, despite the fact that approval is more difficult and time-consuming.
Before you decide to commit to a personal loan, learn how a personal loan EMI calculator can help determine how much you can afford to borrow and start shopping around for the best loan providers right here on Personal Loan Finder!
