Getting a personal loan for most Singaporeans is more often than not a quick way to mitigate an unexpected financial situation that arises, and is a trend that is becoming more prevalent in recent years, especially so in a time of rising living costs and depressed wages.
At some point or another in our lives, money troubles would occur and are situations that we just have to deal with. Regardless of how prudent you are financially, unforeseen circumstances do happen and can throw you a curveball when you least expect it, or monetarily prepared for.
You may then suddenly find yourself in urgent need of money to tide over a problem. In such situations, many Singaporeans would seek banks or alternate financing options such as licensed moneylenders for help with a personal loan.
The good news is that acquiring a personal loan does not need to be daunting, and can be quite a straightforward process, if you’re clear about what you’re doing, as well as the advantages and pitfalls involved.
Read on as we share with you everything that you need to know about personal loan.
What is a personal loan?
A personal loan is simply a borrowing of money from a lender for your personal use. It is an unsecured borrowing in that you do not have to put up your house, car or any valuable asset as collateral for the loan.
This is in contrast to secured loans, where you’re required to pledge an asset as a guarantee for the loan. Examples of secured loans are house mortgages and car loans.
Because a personal loan is unsecured, its interest rates tend to be higher as your lender essentially is taking on more risks to lend the money to you. Also, the maximum loan amount that you can get may be limited.
To get an approval for your personal loan, you typically need to have a good credit history and record of stable income over a certain period of time.
Good financial habits and behaviour in the past are strong indicators of a good credit history, which lenders can assess based on your record with Credit Bureau Singapore (www.creditbureau.com.sg).
Why is personal loan useful?
A personal loan can be a useful instrument in helping you tide over specific short-term financial challenges that you would otherwise not be able to.
One of the key features of personal loan is that it is generally easier and quicker to apply for it compared to other types of loans and financing facilities, if your credit history has been in good order.
It is also flexible in that there aren’t specific restrictions on what and how you spend the borrowed money on, in comparison with other more purpose-specific loans, such as a property loan.
Importantly, a personal loan is one of the facilities that you can apply for with licensed moneylenders in Singapore, which typically can process your application faster and more conveniently than the typical route with banks.
It is also likelier that you would get a loan from a money lender when you could not from a bank, as moneylenders have a rather different risk profile and assessment criteria from that of banks.
When should you get a personal loan?
Whether you should take out a personal loan, and when to apply for it, depends on the urgency of your needs, as loans come with repayment terms and conditions as well as interest charges and processing fees that you will need to fulfill later.
With lifestyle gratification becoming more prevalent in society these days, even celebrated on social media, it can be tempting to also want to have some fun by borrowing money to spend on shopping and holiday.
This however is not the best way to use a personal loan facility, as there are other financing facilities like credit cards that you can use for such leisure purposes.
A personal loan is best reserved for use in financial emergencies where you need the money as quickly as possible to resolve or mitigate unavoidable situations.
Some of the genuine situations where you should consider taking a personal loan include:
- Medical loan for healthcare emergencies
- Study loan for educational expenses
- Credit card consolidation loan for your credit card debts
When not to take a personal loan
Due to the relative ease of borrowing money these days, it can be tempting to apply for a loan whenever you feel like it. This is not advisable and is highly discouraged as such behaviour could lead you towards even greater financial problems somewhere down the road.
Generally, if you wish to take out a loan just to buy something to make you feel good, that is definitely and exactly the kind of situations not to borrow money for.
If you see getting a personal loan as a quick fix to get out of your existing debts, without a proper and realistic repayment plan in mind, then you are almost certain to get yourself trapped in a downward spiral of financial liability, which could land you in legal trouble as well.
On the other hand, if the personal loan is offering a lower interest rate than the rest of your current debts, and you already have a plan in place to pay back what you owed, then getting a loan in the form of a debt consolidation loan can be useful and worthy of consideration.
Types of personal loans you can apply for
In Singapore, there are several kinds of borrowings that are considered personal loans that you can apply for.
Below are some of the more common ones that people usually apply for.
Private hirer loan
There are more and more people turning to becoming a private hire driver, either as a side gig to supplement their earnings, or driving full-time altogether as a main source of income.
If you’re considering such an option, you may also want to take a look at applying for a private hirer loan, which provides the initial cash outlay you need to finance your car purchase or rental for your purpose.
Debt consolidation loan
If you are in debt to a number of banks and financial institutions, you may want to consider getting a debt consolidation loan.
When you take up a debt consolidation loan, your lender will essentially pay off all what you owed to the other debtors, and you will just owe money to this one lender.
Credit card consolidation loan
Similar to the debt consolidation loan but solely for credit card liabilities, this facility helps you pay off all your outstanding credit card bills from the various issuers, and consolidate your combined debt to just a single lender.
It is common for newlywed couples to fund their wedding expenses with the angbao takings from their wedding ceremonies.
Nevertheless, many arrangements and bookings can only be confirmed and reserved with upfront payments or deposits and this presents a cashflow challenge for especially young couples who do not have much savings.
Getting a wedding loan in this case can help alleviate the situation.
Turning your newly bought house into a dream home, or giving your old but cosy abode a fresh look can be financially straining as it requires a significant cash outlay at onset.
A renovation loan in this case helps take care of those upfront renovation expenses without putting a severe dent in your money pool.
Medical loan (surgery loan)
Unexpected health emergencies – such as an urgent surgery – can often lay waste to the best of plans and cause severe financial challenges.
A large sum of money outlay is usually required to get the treatment you need, especially if you do not have adequate insurance coverage to help offset some of the medical costs.
Getting a medical loan can provide immediate temporary financial relief to your situation and take the stress away while you focus on getting healed first.
Study loan (education loan)
A higher education is something that a lot of people desire or aspire towards. However the cost that comes with attaining it can put rest to many a dream.
A study loan would come in handy to cover essential education related bills and expenses so that you can concentrate on achieving the academic results that you want.
Vacation loan (holiday loan)
Sometimes you just want to get away and recharge yourself, so that you come back refreshed and anew to achieve higher performance in your work.
A vacation loan is then just what you need to fund your temporary escape, be it in Singapore or overseas. Take a break now so that you can last the journey ahead.
Being an independent contractor can be a liberating experience, giving you all the freedom in the world to decide when and where you want to work.
However, that also means that your income can be irregular and unstable, and at times cause you to face an unfortunate money crunch.
Taking a freelancer loan helps you get over that temporal dry patch while you focus on hunting down new business and acquire new clients.
What to consider when taking a personal loan
Depending on which lender you go to, the terms and conditions of the loan can vary. It is always advisable to do your own research and get quotes from various lenders to make a comparison before you decide on who to borrow the money from.
Here are some of the factors that you should consider when taking out a personal loan.
A loan term or tenure, is the period that you’re borrowing the money for.
A longer repayment period gives you the opportunity to repay a smaller amount each month, but you’ll end up having to pay more interest in the long term. With a money lender, typically the maximum loan period is up to 24 months.
You can save on interest payable by committing to a shorter repayment term, but you risk straining yourself every month with a higher repayment amount.
It is advisable to choose a loan tenure that allows you to:
- pay off the whole amount in the shortest time possible,
- at a comfortable monthly instalment amount,
- with minimal interest levied.
A critical factor for consideration when applying for a loan is the interest rate that you will be incurring for your borrowed money.
The interest rate percentage and how it is being applied in relation to your loan amount can vary your total repayment amount quite significantly, so always check through the repayment schedule and terms quoted to you and clarify with your lender if you have doubts, before committing to the loan.
In Singapore, licensed moneylenders charge an interest rate between 1% and 4% per month.
Maximum loan amount
Most lenders will loan up to the equivalent of 4x your monthly income, assuming you meet their minimum income requirements.
For money lenders, this is typically capped at $24,000.
There is usually a minimum amount that you need to borrow to qualify for getting the loan, usually $1,000.
Early termination fee
Some lenders will charge you a fee if you complete the loan repayment before the full term of the loan is up.
The early settlement penalty can be a fixed fee or a percentage of the outstanding principal amount.
How fast you can get the cash
In emergency situations, every bit of delay in getting the much needed funds can be an agonising wait and sometimes even thwart your scheduled arrangements to your detriment.
Money lenders generally have a record of dispensing the money fairly quickly, usually the next day, if all the documentation is in and the processing properly done.
Nevertheless, do also check and clarify with your lender to ensure clear communication on this.
There may be administrative or processing fees involved when applying for a personal loan.
Some lenders charge a flat fee, while others peg a percentage to your loan quantum, with the maximum being 1% of your principal amount.
There may be situations when the lenders want to be more attractive to borrowers and offer a waiver of processing fees for a limited promotional period.
Where can you apply a personal loan from
You may probably be thinking that if you are to apply for a loan, it would be to do so with a bank.
Besides going to the banks, a viable and increasingly popular alternative is applying for your personal loan through licensed money lenders in Singapore.
Taking a loan via the moneylender route is especially useful for permanent residents, who may be perfectly capable of servicing a loan, but unable to get one from local banks due to certain restrictions.
One big advantage of borrowing from licensed moneylenders is the flexibility that can be negotiated for your loan terms.
Banks and similar financial institutions have strict risk profiles and credit assessment criteria that they are obligated to comply with, whereas moneylenders generally have more manoeuvrability in their assessment guidelines and can often offer you a better loan agreement.
Where to find the best personal loans
You can do a search on Google and go from one moneylender website to another and learn about the types of personal loans they offer, and the terms that come with those loans. You can also call them up one by one and ask.
A better and easier solution would be to use a quote aggregation platform such as Loanhere.
With a simple enquiry request, Loanhere will generate your customised loan quotes from a curated selection of the best licensed moneylenders in Singapore and send them straight to your email almost instantly.
If you’re looking to apply for a personal loan, get a quote now.