When considering financing options, secured loans can be one of the ways to manage your debts. Unlike traditional loans based solely on creditworthiness and how much money you make, secured loans require you to put up an asset as collateral.
This added security can lead to lower interest rates and higher borrowing limits. However, the potential loss of your asset in case of default is a significant downside. In this article, we’ll weigh the pros and cons to help you decide if a secured loan is right for you.
What is a secured loan?
A secured loan is a financial arrangement where you borrow money by using one of your assets as collateral. This means you pledge something valuable, like your home or car, as a guarantee to the lender.
Think of it as a safety net for the lender: if you’re unable to repay the loan, they can sell your asset to recover their money.
How does a secured loan in Singapore work?
Here’s a simple overview of the secured loan application process in Singapore.
Step 1: Research and apply for a suitable secured loan
Tap on personal loan comparison tools or platforms like Personal Loan Finder to find a suitable secured loan with the lowest interest rate with a repayment period that works best for you.
Step 2: Asset evaluation
The bank or lender assesses the value of your asset to determine how much you can borrow.
Step 3: Loan agreement
Once approved, you sign a contract outlining the loan terms.
Step 4: Money disbursement
The agreed-upon loan amount is transferred to you.
Step 5: Repayment
You make regular payments as stated in the loan agreement.
Step 6: Potential for collateral seizure
If you can’t repay the loan, the lender may sell your pledged asset to recover the money owed.
What are the main pros of secured loans?
Secured loans offer several benefits to borrowers in Singapore:
- Lower borrowing costs: Enjoy reduced interest rates compared to unsecured loans.
- Increased borrowing power: Borrow larger amounts based on the value of your assets.
- Improved loan terms: Often come with more favourable repayment conditions.
- Higher approval chances: Easier to qualify even with a less-than-perfect credit history.
- Manageable repayments: Smaller monthly payments can help with budgeting.
What are the main cons of secured loans?
- Risk of losing assets: Taking a personal loan with collateral means the lender can take your collateral, such as your home or car, if you can’t keep up with payments.
- Longer processing time: Getting a secured loan usually involves more paperwork and valuations compared to unsecured loans.
- Higher risk of over-borrowing: Because you can borrow more, you might end up with more debt than you can handle.
- Probability of higher repayments: Some secured loans (e.g. home loans) have interest rates that can change, leading to higher repayments.
- Risk of bad credit score: Falling behind on payments can damage your credit, making it harder to borrow in the future.
- Limited use of assets: While you have the asset, you might have limits on how you can use it until the loan is fully repaid.
What are the types of secured loans you can get in Singapore?
Home loans
Home loans are a prevalent type of secured loan in Singapore where the property being purchased serves as collateral. If you default on the loan, the lender has the right to seize the property to recover their funds. Homeowners can also refinance their existing mortgage to potentially obtain a lower interest rate or to access their home equity.
Car loans
To finance the purchase of a vehicle, a car loan is typically required. In this arrangement, the car itself is the collateral. The lender can take possession of the vehicle if you aren’t able to make your loan repayments.
Property equity loans
Property equity loans allow you to borrow against the equity in your property — the difference between the property’s value and the outstanding mortgage. Your property serves as collateral for this loan.
Secured personal loans
Secured personal loans in Singapore require you to pledge an asset, such as a savings account, fixed deposit, or other valuable items, as collateral. The loan amount is generally determined by the value of the collateral.
Business loans
Secured business loans provide entrepreneurs and business owners with additional capital, using business assets like equipment, inventory, or real estate as collateral. This reduces the lender’s risk and can lead to more favourable loan terms.
Pawn shop loans
Pawn shop loans offer immediate cash by pledging valuable items, such as watches, jewellery or electronics, as collateral. The pawnshop holds the item until the loan is repaid with interest.
Where can you find secured loan lenders in Singapore?
#1 Banks
When searching for a secured loan in Singapore, banks are often the first place people look, offering a wide range of options to meet different financial needs. For example, DBS provides secured loans for homes, cars, and businesses. OCBC and UOB also offer competitive secured loan packages for individuals and businesses.
Beyond banks, other financial institutions can provide secured loan options. CIMBand HSBC offer secured loans for both personal and property-related needs. Standard Chartered is another reputable choice, providing a variety of secured loan products.
#2 Licensed money lenders
For borrowers with specific requirements, Registry of Moneylenders-licensed lenders can be an alternative. For example, Goldstar Credit specialises in secured personal loans in Singapore, offering flexible terms and quick approvals. 1st Capital is another secured loan lender if you’re looking to get personal loans with collateral.
#3 Online comparison platforms
If you’re faced with the dilemma of borrowing from money lenders vs banks, we have just the handy tool for you.
For those who prefer to compare different options before making a decision, online loan comparison platforms such as Personal Loan Finder are useful platforms that compare the best private personal loans in Singapore, including secured options.
How to decide if a secured loan is right for you?
Deciding if a secured loan is right for you involves evaluating several key factors to ensure it aligns with your financial situation and goals, and they include the following:
- Assessing your finances and checking your income, expenses, and debt.
- Evaluating your collateral and understanding each of your asset’s value and risk.
- Comparing loan options and scrutinising the details such as interest rates, terms, and fees.
- Defining your loan purpose and ensuring that it aligns with your financial goals for short-term and long-term benefits.
- Reviewing repayment terms and checking if you can afford monthly payments.
- Understanding the risks involved and weighing the potential loss of collateral.
In a nutshell…
While secured loans offer a compelling proposition with the promise of lower interest rates and higher borrowing limits, the allure of these benefits comes with significant risks.
Ultimately, the decision to opt for a secured loan hinges on your financial situation, risk tolerance, and the specific terms of the loan. If you need a large loan and can comfortably manage the repayments while being prepared to lose your collateral, a secured loan in Singapore might be a viable option.
However, if you prioritise flexibility and are concerned about potential asset loss, an unsecured loan or exploring alternative financing methods might be a better fit. When deciding between secured and unsecured financing, carefully assess your financial circumstances and need to determine which type of loan to go for.
Looking to explore what licensed secured loan lenders have to offer? Reach out to us to learn more about our legal loan providers. Alternatively, simply submit an online application in seconds — we’ll help you suss out the best loan offers from top-rated licensed lenders in singapore.
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.
