What is a Personal Loan?
A personal loan is an unsecured loan. This means that you don’t have to put up any collateral against it. Taking a personal loan is a great option for a number of reasons. Such as if you need a loan without having to explain the circumstances behind it for whatever reasons you may have. In general, you can consider taking one if you have an urgent need for cash, but don’t have any property or assets to use as security.
You can use these types of loans for a number of reasons. From really serious and urgent issues such as feeding your gambling habit (which I’ll refrain from lecturing you about), to renewing your COE. Or simply extra costs such as going on vacation or wedding planning. All of the above require a huge sum of cash and aren’t important enough to risk losing your home over.
If you do have assets or property, then you should take a loan from a bank and use your assets to secure them. This is because many of the personal loan sources can be the less than unsavoury type. If you fail to meet their strict obligations, then you can wind up being in lots of trouble down the road. So to avoid this, you should only use reputable institutions with a good record to get your loan. This includes licensed moneylenders as well. Not all licensed moneylenders behave in a civilized manner. You should always read up more about the company before going to them for a loan.
There are numerous advantages to taking a personal loan. The first, as mentioned above, is their flexibility which was briefly touched on above. There are a whole bunch of things that they can be used for, ranging from emergencies, such as high medical bills or car accidents which your insurance won’t cover. Or even to simple lifestyle stuff such as covering your vacation or wedding planning costs and covering an expensive hobby of yours. Flexibility is the first advantage of choosing a personal loan
The second advantage is their quick availability. Most institutions you borrow from will read your paperwork, approve your request, and have the cash back to you in cheque. Some even directly deposit the money into your bank account within a few days. In some cases, depending on how thoroughly you and the lender did your paperwork, you can have the cash in under a day.
The third advantage, is that compared to other loans, personal loans don’t require that much paperwork. As a direct result of this, the processing time is much quicker.
The first disadvantage that comes from taking personal loan in general is their high interest rates compared to the other types of loan. Due to the fact that you don’t present any collateral when taking one up, money lenders take giving you money as a high risk situation. Thus they charge extremely high interest rates to reflect this and try their best to curb the risks to themselves. However, you do not have to worry about this anymore. Why is this so? Because Ministry of Law has set a capped on the interest chargeable.
The second disadvantage is that you can’t do a part payment on the loans with banks. With most other types of loans, if you get a huge sum of cash, then you’re allowed to clear the total amount that you have left to pay in one go. Banks generally don’t like this because they then lose out on all the remaining interest that you will have to pay. But it’s great for you as the loan taker as it frees you from the stress of having to pay the remaining installments.
Legal money lenders on the other hand tend to accept part payments. This means that you will be able to make partial payment every month if you are unable to make a full payment. However, do not assume that all money lender practice this. You should always check with your lender before agreeing to take a loan from them. If you are looking for a moneylender who will allow you to do this, check out our list of best moneylender in Singapore.
The last disadvantage is that though personal loans have fewer requirements than the other types of loans, you still need to have a decent credit rating to get access to one. This is especially so with banks. Banks have very strict criteria when approving loans to the people. As we mention earlier, these are high risks for money lenders. If you’re looking to get one from a reliable money lender then they will want to know that you have a decent financial history. Of course, licensed money lender do not expect grade A rating from you but they do expect your grade to be somewhat decent.
And it’s actually better for you to have a good interest rating because the rate of interest correlates inversely to your credit score. The lower your credit score, the higher your interest rates will be.
How Much Can You Borrow
– Chosen by your monthly income 2 to 6 times up to $200,000, also at the discretion of banks and licensed money lenders
– Less than $20,000 per year disqualifies you if you’re Singaporean or PR but this only applies for banks. Legal money lenders are still able to provide you with a loan.
– Any loan you apply for will be higher interest the lower your income, applicable for banks. Licensed money lenders on the other hand have a capped on the interest chargeable which is 4%. This allows you to have some certainty and gauge on how much the interest will be.
– Foreigners must earn $40,000+, this is also applicable to banks only. Licensed moneylenders do not have such a regulations. Most of them just expect you to be working right now and in the future.
– Bank Interest rates are around 4.7%. Licensed moneylenders are 4% per month.
How much you’ll be allowed to borrow depends on the amount that you earn. The total will generally come to around two to six times your monthly income and you’ll struggle to get a loan of above $200,000. Though the exact figure will depend on your credit rating.
How to Get Yourself One
– Fill out an application and cheque will be given within a few days. Money lenders however, will be able to provide you with the cash immediately after approval and signing of loan contract.
– Photocopy of NRIC
– For foreigners, valid passport & employment pass with 6 months validity
– Proof of income: e-statement, CPF contribution history for the past year or income tax notice of assessment (for self-employed 2 years)
The first step is to figure out if you qualify. Generally, you’ll need to earn a minimum of $40,000 per year if you’re a foreigner or $20,000 if you’re a Singaporean or Permanent Resident. This is a requirement by the bank and not licensed money lenders.
If you’re in the latter group, then you should note that if you earn between $20,000 and $30,000 per year, then you’re more likely to get higher interest rates than the Singaporeans who earn more than $30,000 per year. Legal moneylenders charge a flat interest rate to everyone, regardless of your income level.
But now, we’ll move onto the process. As we’ve mentioned numerous times, it really is a simple process.If you’re a first timer you’ll only need to have
1. Proof of Identity
- A photocopy of both sides of your National Registration Identity Card if you’re a Singaporean
- A valid passport and employment pass that’s eligible for at least six more months if you’re a foreigner.
2. Proof of income
- Your most recent E-statement or Income Tax Notice of Assessment
- If you’re self-employed, then you’ll need your income tax notice of assessment from the past two years.
In conclusion, personal loans have their own strengths and weaknesses just like any other type of loan. But whether or not you should take one up depends on your circumstances. If you need money urgently, or have no assets, then they this is a good option for you.
But otherwise, you would be better off going for the more traditional method of getting cash from a financial institution.
If you have tried getting a personal loan from banks and failed, consider licensed moneylenders.
Legal moneylenders in Singapore provide personal loans to all working adults. License money lenders are able to provide the loan within an hour. In addition, they are also similar to banks in such a way that they provide monthly installment plans.
Got any questions regarding moneylenders in Singapore or taking a loan from them? Feel free to call us at +65 6871 4268. Our friendly staff are more than willing to answer any of your questions.