In Singapore, avoiding your loan repayments has severe consequences that may interfere with your future plans. One thing you need to keep in mind is to take out moneylender loans that you are always in a position to pay back on time. It may seem like an easy solution for you to default on your personal loan, but in the end, it will create much bigger issues that will follow you for many years.
Most Singaporeans Get Unsecured Loans
It’s impractical for a licensed moneylender or bank to require secured loans in small amounts such as S$10,000 or even S$20,000. Although these are huge amounts of money to an individual, they are small when compared to the sums of money handled by many big companies such as banks. For such small loan amounts, the moneylenders, as well as banks, often make use of products such as personal credit lines, personal loans, in addition to the credit cards.
These types of loans do not require any sort of security – the moneylender basically trusts that their borrowers will pay off their loans. When a borrower is not able to make repayments, the money lending institutions will, in the long run, be required to write off these debts as a loss. This often means that the individual is in default.
Although this may seem like a dream come true for a borrower, that’s not the case. You need to realize that you will incur dire consequences for defaulting on your loan, even when it’s unsecured loan type. These consequences may include:
- Denied access to important loan types
- Money in your accounts being seized
- Difficulties landing a job
- Facing Legal proceedings
Denied Access To Important Loan Types
When you do not pay off your loans, it will reflect in your current credit report. Having a poor credit rating may, in fact, make it hard for you to obtain important loans, like a home loan or even the education loans. This may actually deprive you of essential financial opportunities.
For instance, people who are not able to access a home loan will many times be forced to rent. Such is a major waste of money since they are not able to purchase a home for reselling or to rent out.
Also, the individuals who are unable to access education loans might end up struggling to land better job opportunities, or even obtain promotions. For that reason, even though getting your debts written off might appear to be a good thing for a short period, the actual costs are hardly worth it.
Money In Your Accounts Being Seized
Although the money lending institution determines whether the money in your account will be seized, the conditions and terms of the loan also have an influence. However, under certain circumstances, when you hold money with the lending institution, they will be able to repossess it and use for repaying the outstanding debt.
Make sure you read through the loan details before you sign it. Obviously, when you have some money in your account, it begs the question why you aren’t making the repayments.
Difficulties Landing A Job
When you have failed to repay your moans in the past, it more likely will be reflecting on your credit records. When your debt is cancelled and you have made no attempts to settle it or even negotiate, the non-payment will indefinitely stay on your records. When you have made satisfactory efforts to repay your debt, for instance through the help of credit counsellors. After that, the defaults and partial defaults will be removed after three years from your credit record.
A would-be employer cannot access your credit records, but they might request that you present them with a copy. Several companies have strict policies against employing individuals who are deep in debt or even those who’ve defaulted in the past.
A hiring manager will consider this as an indication of irresponsible behaviour, and might even decide that your fiscal woes may affect your quality of work. In a few industries, for example, finance, the position can be almost impossible to obtain when you have a poor credit report (not many people will trust a financial counsellor who has a long default list!)
Facing Legal Proceedings
When the bank thinks that you have some money but you simply don’t feel like repaying it (this happens at times), they might open legal proceedings. Depending on the agreement you signed for your loan or the credit card, legally you are obligated to repay your debts.
Usually, you will receive the initial legal warning when you fail to make your repayments in excess of 30 days. However, in some situations, the legal action might take place much earlier (for instance when the money lending institution finds out that you are making arrangements to go away from the country.)
Secured vs. Unsecured Loans
As a borrower, you are able to access both unsecured and secured loans from licensed moneylenders or banks. When a personal loan is taken as a secured loan then you will need to present some form of security (it’s used to back as a promise by the borrower), and as unsecured when it is issued based on reputation and a borrower’s trust.
One example of the secured loan is a car loan, and a housing loan. In such situations, the security (your assurance that you’ll repay your loan) is your house or car in question. When you are not able to pay off your home loan, for instance, the lending institution has the right to repossess your home.
A further kind of secured loan, that is often limited to well-off borrowers, is the Lombard lending. For these types of loans, the security maybe almost anything that is of high value (an example antiques, a set of vintage cars, or wine.) when the borrowers do not pay back the loan, the lender will acquire their collateral. Therefore, the result of not repaying your secured loan is easy: you’ll lose whatever security you presented for your personal loan.