What is an Unsecured Loan? Singapore’s Savvy Guide to Flexible Financing

Personal Finance

What is an Unsecured Loan? Singapore’s Savvy Guide to Flexible Financing

September 20, 2023

You may need finances for tuition, upcoming projects, or even unplanned expenses. Unsecured loans can assist you in obtaining financing without putting up security like your house or car.

Most of us are familiar with secured loans like mortgages and car loans, where the collateral is necessary. But the situation is different in unsecured loans.

Read on to discover the definition, how unsecured loans work in Singapore, and the advantages and disadvantages of unsecured loans. You’ll also learn factors to consider before taking an unsecured loan in Singapore.

What Are Unsecured Loans?

What Are Unsecured Loans

Unsecured loans in Singapore do not require you to provide any collateral. They are also known as signature loans or good faith loans.

These loans frequently have less stringent eligibility and application requirements than secured loans. Many lenders provide same- or next-day cash. Examples of unsecured loans in Singapore include:

  • Unsecured credit cards. Credit cards come in various forms, but the most common type only sends a statement once a month and charges interest on unpaid balances.
  • Student education loans. They are perfect when advancing your education to the tertiary level. Most student loans accrue no interest throughout your enrollment. You can begin making payments once you’ve completed your education.
  • Personal loans. You can use them for whatever purpose, whether paying bills, urgent expenses, surgeries, weddings, or vacations.

The Comparison Between Secured And Unsecured Loans

Unsecured loans pose a higher risk level for lenders than secured loans due to the absence of collateral. In the event of a borrower’s default, banks cannot seize assets to recoup losses. They force lenders to pursue collection proceedings such as wage garnishment.

Also, Singapore unsecured loan amounts are typically lower than secured loans due to the absence of collaterals.

Unsecured loans are associated with higher interest rates and less advantageous repayment terms than secured loans. They have a fixed repayment period since borrowers must repay the loan within a specific period due to its unsecured nature.

How Do Unsecured Loans Work In Singapore?

Here is how the unsecured loans work in Singapore:

Unsecured Loans From Banks In Singapore

Banking institutions in Singapore provide unsecured loans with interest rates starting from 3% per annum. Before approving the loan amount, banks normally thoroughly evaluate the applicant’s credit history.

Before submitting your application, it is imperative to ascertain your eligibility. Individuals who meet the following eligibility criteria may be qualified for an unsecured loan:

  • Must be a Singapore citizen or have a Permanent Resident status.
  • A minimum yearly income of $20,000.
  • An age range of 21 to 65 years.
  • A favourable credit history.

Banks in Singapore that give out unsecured loans include Standard Chartered, OCBC, UOB, and DBS.

When you arrange a meeting with your bank, ensure that you bring the necessary documentation, such as your identification card, evidence of income, and any further paperwork your bank may request.

Unsecured Loans From Licensed Money Lenders

You can get unsecured loans from the various money lenders in Singapore. Licensed money lenders offer simplified application procedures and monthly interest rates between 1% and 4%.

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How To Find The Most Suitable Singapore Unsecured Loan

You can receive the most outstanding unsecured loans by following these steps.

  1. Keep Your Job

You will have a better chance of acquiring an unsecured loan if you are employed and have a continuous source of income. This is regardless of whether your employment is permanent or freelancing.

  1. Make Sure Your Credit Rating Stays High

There is no physical asset to secure the loan. Thus, financial institutions and regulated money lenders must thoroughly examine your credit score and borrowing history.

Keeping your credit score high will help you get approved for a larger loan and a more extended period at a reduced interest rate. Maintaining on-time and complete loan repayments is essential to building and maintaining a solid credit history.

Advantages Of Unsecured Loans In Singapore

Unsecured loans come in many different categories; thus, they are flexible in loan usage. Let’s look at more advantages of unsecured loans below.

No Collateral Required

This is a major perk as only some Singaporeans own properties required to guarantee a loan. It enables most people to access the loans easily, provided they meet the eligibility criteria.

Fast And Streamlined Application And Loan Approval Process

Compared to conventional financial institutions, licensed money lenders offer expedited and streamlined application procedures for modest unsecured loans and larger loan amounts.

Licensed money lenders may be a suitable and lawful alternative for individuals seeking immediate financial loans.

Fast Access To Funds

Most unsecured loans in Singapore are available in less than 24 hours. Since there are no collaterals, there is no wasting time verifying the securities’ legality.

Disadvantages Of Unsecured Loans In Singapore

Let’s look at three common disadvantages of getting unsecured loans in Singapore.

Elevated Interest Rates Compared To Other Countries

People who take unsecured loans in Singapore are bound to pay high interest. Banks in Singapore often charge an interest rate of 3% and above on unsecured loans. The reason behind this is due to the lack of collaterals.

Lower Loan Amounts Due To Singapore’s Economic Structure

Singapore’s economic structure makes the loan amount given as unsecured loans less. Also, the fact that there are no collaterals makes the money lenders and banks give out small loan amounts. This is because they fear losing a lot of money in case of loan default.

Shorter Loan Tenure In Line With Singapore’s Banking Norms

According to the banking norms in Singapore, most banks provide a 5-year repayment period for unsecured loans. Failure to repay the loan within the stipulated tenure may increase interest.

Your credit score may be affected negatively. You can even fail to access loans in the future if you don’t honour the repayment agreement.

Factors To Consider When Taking An Unsecured Loan

You should consider several factors before taking an unsecured loan in Singapore. They include the following:

Assessing Financial Needs

You should assess the financial needs of Singapore’s economic environment. In short, borrow only what you need, even if the bank or the money lenders are willing to give you a bigger loan.

Borrowing more than you require may cause you to misuse the money. Thus, you can struggle while repaying the loan.

Interest Comparison

You should compare the interest rates offered by various Singaporean banks. Some lenders may offer unsecured loans of lower interest rates compared to others. Always opt for the one with low interest.

Understanding Loan Repayment Terms And Conditions

Before borrowing unsecured loans, understand Singapore’s loan terms and conditions. Different lenders have different repayment conditions; thus, be familiar with them. Compare the repayment terms and choose the one that suits your needs.

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There are many advantages of taking an unsecured loan in Singapore. The major pro, however, is the absence of collateral. This will enable even small business owners and students with no valuable assets to acquire loans.

You should thoroughly research the different financial options and institutions offering unsecured loans. Compare their loan terms and choose the one that suits your needs more.