Singapore is one of Asia’s highly developed cities and as such, the cost of living and expenses can be quite high. Whether you are working or studying in the city, you would need some funds on hand to pay for your expenses and other necessities. However, there are days when you feel your on-hand funds is not enough to the point you feel like you would be unable to live the next day as comfortably as you could or should.
When your salary or savings is not enough to sustain your expenses, there are many options to consider to help you fund your needs and pay your expenses. You can borrow money from your family or get a personal loan from a bank or a moneylender.
However, if you are new to all this financial terminology, you may not be familiar with the inner workings of what a “personal loan” is and how it differs to other financial services. Is it like mortgages? Or something different? What are the risks? What are the advantages? Is there some criteria to follow before you can get a personal loan?
What are Personal Loans?
Personal loans are actually “unsecured” type of loans which do not require a collateral to acquire. If you are somehow unable to pay your personal loan, the bank cannot repossess your properties. They can repossess properties like your house or car if you are unable to pay a mortgage loan.
While there is no need to submit a collateral for personal loans and worry about it being repossessed by the bank or moneylender, it does have higher interest rates in comparison to mortgages. You would also find your credit score damaged if you failed to pay your personal loan or default it.
What else are the pros and cons of personal loans?
Advantages of Personal Loans
Here are some of the advantages of personal loans:
Personal loans can easily be received after one week of application. Sometimes, it is handed on the same day.
- Fixed Interest rate
Unlike credit cards that come with variable interest rates, personal loans are fixed and would only rise up if your balance increases.
- No collaterals
As noted above, you do not need to worry about the bank or moneylender getting any property from you if you fail to pay your loans.
Cons of Personal Loans
Here are some of the disadvantages of personal loans:
- High Interest
Although personal loans have fixed interest rates, they actually come with high-interest rates as your balance remains very high. As a result, you pay more for what you actually borrowed.
- Affects Credit Rating
If you have a good credit rating, you may be able to still get some loans with lower rates. However, this would mean you would only be able to get collateral loans for your next money needs.
How does a Personal Loan Work?
When your personal loan application is accepted, you will be receiving the amount you requested and the time period as to when you need to repay it back. The interest rate and payment period of these loans may vary depending on your arrangement with the loan provider, although it may span for a few years.
It is also common that repayments are amortized, meaning it comes with an interest charge and the principal amount you need to pay. Fortunately, the payments would not balloon over to a higher amount by the end of the loan term, which makes it easier for you to pay it monthly.
Personal Loan Requirements
Singaporeans, from ages 21 to 65, are qualified to request for a personal loan if you manage to submit the following requirements:
- Proof of Identity: Singapore Identification Card
- Proof of Address: Any document showing your name and address (ex. Credit card bills, phone bills)
- Proof of Income: Must have an annual income of $30,000 or higher, Central Provident Fund annual statement, the latest income tax notice of assessment or latest computerized salary.
Foreigners based in Singapore, from ages 21 to 65, are also allowed to request a personal loan if they also submit the following requirements:
- Proof of Identity: Employment Pass and Passport
- Proof of Address: Utility bills showing your name and address
- Proof of Income: Annual income must be from $40,000 to $60,000, latest yearly Central Provident Fund statement, latest computerized salary or latest income tax notice of assessment
For other types of personal loans, additional requirements may be requested depending on the loan provider. It is crucial that you ask first before you file your loan application.
Available Personal Loans in Singapore
If you in Singapore and in need of some funds, there are three types of personal loans you can avail depending on your preference and need.
- Credit line
With this type of personal loan, the lender determines how much you can borrow from your credit line whenever you need it. When you pay, you only pay the interest and the borrowed duration. After you pay everything, you no longer have to pay anything until you borrow money again.
- Personal Installment Loans
This type of personal loan is the standard type of loans where the money is given to you upfront. You would need to pay it back monthly for a certain value.
- Balance transfer
If you do not want to pay numerous companies, you can simply consolidate them into one big bill by seeking a balance transfer loan. A grace period may be included in the arrangement depending on the lender in question when you request this loan type.
Should you take out a personal loan?
Taking out a personal loan should not be made haphazardly because it may not be appropriate for your financial need or capacity. You must be able to pay the money back regularly without fail. If you are unable to commit to paying it regularly, you should consider other options because defaulting loan payments come will affect your credit rating for future loans.