Singaporeans are spoilt for choice.
This is when it comes to accessing loans in the market. The options are endless. On the other side, not all these choices are ideal. By picking the wrong moneylender, and you might end up deeper in debt. More than you would have suspected.
Below are differences between these lenders:
You can legally borrow from 3 types of lenders in Singapore. Their practices will vary and these lenders cater for different borrowers:
- Pawn Shops
- Licensed moneylenders
Pawn shops usually let you “pledge” a valuable item in exchange for loans.
Once you present valuables to pawn shops (e.g. a gold watch). Pawn shops will lend you some money. The amount ranges from 60 to 80% of the value of your item. Therefore, when you are to pledge a watch worth $ 9,000. You might get a loan amount of $72,000.
Pledge is the valuable item you present to the pawn shop dealer. Once you receive the loan, you get 6 months you to pay back the whole loan and interest. Failure to that, your valuable item will be auctioned. Typically interest rates on this loan are 1 percent for the initial month. Subsequent months will attract 1.5% interest. The rates are lower compared to the normal credit card, that charges 2% a month.
Realize that these repayments amounts are not fixed. For instance, you may decide to repay $50 for one month. You could also pay $700 for the following month. Thereafter, $400 for the month after, etc. Whenever you make a remittance, the auctioning of the pledge will be postponed by six months.
Note: Do not use pawn shops as a “quick sell” place for watches, jewellery, and other valuables. Usually, you will get less cash from pawn shops. That is more than you might get when you sell it to a watch dealer or goldsmith, etc.
What you need to acquire a loan is a pledge and Identification (your IC). Income, outstanding loans, and credit history are not required.
Failure to repay your loan, you only lose your pledge. That is not the same for personal loans and credit card line. This debt only keeps compounding when you do not repay.
A rate of 1.5% each month, maybe lower compared to credit cards. It still very high when you compare it to personal loans offered by banks.
These lenders offer a single loan. Thus no revolving credit products.
The loan you may borrow depends on the value of the pledge.
You should own an item worth being pawned for you to access a loan.
Banks the popular sources of credit. They widely can be divided into private banks and retail banks.
Retail banks provide “mass market” type of loans. These come in forms of business loans, credit cards, car loans, personal etc. Their range of products is too big. These lenders are able to fulfill most borrowers needs.
The second type of bank, the private banks, provide primarily to high net-worth borrowers. These lenders provide unique loan choice when you have valuable security. For instance, given that you own an extensive fine wines collection.(the private bank can conduct valuation exercise for it). They then can offer you the loan using your wine collection. This will act as the collateral.
Pros Of Borrowing From the Banks
Banking institutions think highly of their reputation. Thus they are subject to strict industry regulations. They also keenly adhere to government policing.
Most banks may offer you revolving credit products. These they do use loan products like the credit cards. By using revolving credit, will require that you make a new loan application. That is each time you wish to take out a loan.
They can offer bigger loan amounts compared to other lenders listed.
Banking institutions might charge lower rates. That is when you compare them to other credit sources listed here. This is especially for specific loans like the education loans and home loans.
Making repayments to banks is normally more convenient. The repayment methods are many. You could do so from the bank’s ATM, online, by mail and through its branches. The other lending options listed here will often require that you make remittances in person.
Banks follow strict standards for their borrowers. These include things like Debt Servicing Ratios- DSRs. Additionally, they use minimum salary requirements. This means not many Singaporeans will qualify for bank loans.
When you fail to pay off banks promptly. It might damage your records with all the other banks. This could even include other financial institutions. When you failed to repay bank loans before. You will not have the chance to borrow from banks at all.
The private banks are generally not accessible to borrowers without several extra million dollars.
This type of lender often times deals in small loans. That is loan amounts of up to $10,000. Though some licensed lender might be ready to give larger loans. This is however for few clients. Loans offered are either secured or unsecured.
Accredited moneylenders transact individually with their customers. Although these lenders also assess your income and credit history. They may offer different interest rates and the loan size based on the own judgment. It is for this reason, it is hard to make general statements regarding legal moneylenders.
Owing to the high risk involved in the money lending business. Licensed moneylenders in Singapore will charge high interests. These rates depend on a borrowers income:
Most legal moneylenders need fixed monthly remittances. However, these terms can be negotiated.
These are providers of last resort. These lenders can give you loans even after banks have rejected your loan request.
They have in the past ugly incidents that engaged services of debt collection bureaus. There has been alleged harassment of borrowers. Banks are big enough to take in bad debt. Yet they generally care much about their reputation. Thus they will never result in using such strategies. Not the case for moneylenders. Few lender charge interests that are almost exorbitant. Therefore it is important that you do your own research in getting the best service from the best moneylenders in Singapore.