What Is A Lender? A Comprehensive Guide To Understanding Lenders In Singapore

Personal Finance

What Is A Lender? A Comprehensive Guide To Understanding Lenders In Singapore

September 11, 2023

Unpredictable financial emergencies can occur anytime in today’s hectic world, prompting the need to find a trustworthy money lender. Whether you need money for a medical emergency, school, or business, choosing a reliable money lender in Singapore is essential.

With so many money lending services, this article will help you know who a lender is, the types of lenders, and who is the best lender for personal loans.

Who Is A Lender?

Who Is A Lender

A lender refers to an entity, whether an individual, a collective (either governmental or private), or a financial organisation, that provides money to an individual or company with the anticipation that that person will repay the cash.

This process will encompass the remittance of the interest and any other costs. One may pay it in regular instalments, such as monthly mortgage payments, or a single lump sum.

So, what is the role of a lender? A lender fulfils its literal definition by providing borrowers with monetary funds they must repay with an additional amount known as interest.

Categories Of Lenders In Singapore

There are two main types of lenders:

  • Traditional lenders comprise financial institutions and banks.
  • Alternative lenders- as the name suggests, they provide alternatives to lending. Examples are marketplace lending, (Peer-to-Peer) P2P Lenders, fintech, and crowdfunding.

Lending institutions in Singapore offer several types of loans, including personal, payday, home equity, mortgage, student, auto, and small business loans.

Detailed Explanation Of Lenders

Lenders constitute a significant component of the financial system and assume a crucial function in the broader economy of Singapore. Individuals need financial resources to acquire goods and services, establish entrepreneurial ventures, engage in investment activities, etc.

Role Of Lenders In The Singaporean Economy

In the event of inadequate financial resources, individuals can acquire loans. Lenders provide a variety of loan products and possess the ability to tailor loan offerings to meet individual needs.

Regardless of its magnitude and characteristics, every loan involves two parties. The lending entity is responsible for providing funds, whereas the borrower is the loan recipient.

Differentiation Between Lenders And Creditors

‘Creditor’ refers to a source of funds in connection to a particular borrower, whereas ‘lender’ stands for a supplier of funds generally. Lenders generally fall under the classification of creditors.

Examples of lenders include credit unions, banks, and peer-to-peer (P2P) lending. They participate in lending activities following established criteria in Singapore.

Lenders in Singapore commonly impose interest on borrowers, consequently generating revenue through their lending endeavours. In some cases, if an individual borrows funds from a personal acquaintance or family member, it is possible that they will not be subject to an interest rate.

Concept Of Zero-interest Loans And Soft Loans In Singapore

In certain circumstances, entities can provide loans with no interest, requiring only the payback of the original amount, on the condition that the borrower adheres closely to the time frames the two parties agree upon.

A loan with an interest rate lower than the prevailing financial market rate is sometimes known as soft loans or soft finance. Additionally, these loans may feature lengthy payback periods or interest holidays.

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Lenders That Exist In Singapore

In general, there are two main categories: traditional and alternative. Let us examine each:

Traditional Lenders

This features traditional lending methods, typically including banks alongside various financial organisations as the primary lenders. The lending institutions contain different credit offerings, from individual to corporate loans, covering small and large loan amounts.

Role Of Banks And Financial Institutions In Singapore

Lending activities occur securely, wherein the borrower incurs a debt responsible for repaying the principal amount and interest. In the event of a borrower’s default, the lender has complete authority to acquire ownership of the borrower’s assets.

Furthermore, financial institutions, such as local banks, commonly provide customisable loan options with set interest rates. The aim is to facilitate loan acquisition and enhance borrowers’ ability to meet payback obligations punctually.

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Alternative Lenders

Alternative lenders address financing options for companies unavailable through conventional banking channels in their most basic form. Fintech, crowdsourcing, marketplace lending, and P2P (Peer-to-Peer) lending are all excellent examples.

Because these lenders don’t constitute part of the conventional establishment, the authorities tend to give the alternatives a break on several fronts, including the obligation to comply with specific rules and regulations.

Alternative lenders offer secured or unsecured loans, with the latter posing a more significant threat to the lending company. Their interest rates are sky-high, and they typically require no collateral.

Short-term loans from these alternative lenders are often for small amounts, and larger loans may need providing financial statements, business plans, and proof of employment.

Specific Illustrations

Let’s investigate various cases to grasp the idea of lenders in Singapore better:

First Instance Of HDB Home Mortgage Scenario In Singapore

Ben desires to acquire a residential property in Singapore, although he lacks the necessary funds to meet the requisite amount. So Ben goes to a bank in Singapore and applies for a mortgage. Following a comprehensive review and subsequent procedures, the bank approves the mortgage.

The property he desires to purchase costs $300,000. In the conventional practice of buying a residential property, it is customary for the buyer to provide a down payment equivalent to 20% of the total purchase price in the form of liquid funds.

A mortgage or loan agreement through a financial institution should pay the remaining balance. The manager says he can borrow $240,000 at 4.5% interest for ten years.

In the above scenario, the financial institution assumes the role of mortgage lenders while Ben fulfils the borrower’s part.

Second Instance: Role Of Credit Unions And Cooperative Societies In Singapore

Credit unions vary in size and scope, with some engaging in small-scale lending activities while others operate throughout multiple states. These unions and cooperative societies provide diverse financial services comparable to traditional banks, with a notable emphasis on mortgage products.

In most cases, it is a prerequisite for the applicant to hold membership in a credit union to be eligible to apply for a mortgage loan. In addition, credit unions may be a more advantageous option owing to their customer care and exclusive benefits available solely to their members.

Frequently Asked Questions

Definition Of A Lender And Borrower In The Singaporean Context

Lenders are those who provide financial loans. The lending institution could be a moneylender, credit union, local bank, etc. On the other hand, the borrower is the individual or entity that takes out the loan.

Concept Of A Private Lender In Singapore

A private lender describes a person or company offering loans to people having problems getting loans or when their bank turns down a loan application. As a result, these organisations frequently charge more excellent interest rates than banks.

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There are various ways to secure a loan, whether you need it to make a big purchase or boost your business. Consider the lender’s history before committing to conduct business with them.

Traditionally, banks and other financial institutions have been the go-to option, but recently, many viable alternatives exist. Knowing what you’re getting into and having the resources necessary to repay a loan in full before taking one out is essential.