'PERSONAL LOAN' written on a notebook beside laptop and coloured pencils in a glass tumbler

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A Guide To Personal Loan And Its Purpose

Here is a wide array of reasons why you would want to borrow some money from a bank or any money lending entity. However, unlike in a standard loan where you have a specific reason for borrowing money (for example in a car loan – you get a car loan for buying a car) you obtain a personal loan for almost any purpose.

In a personal loan, one borrows an amount of money for a specified period at a fixed interest rate and pays a fixed monthly payment. There are secured personal loans, but unsecured ones are the ones more often used.

A personal loan can be used for anything you desire, either it is for a routine you have, such as paying your electric and water bills, or something that you did not expect to happen like an expense for your car breaking suddenly down, or for the medical payment of a family member being hospitalised. It can also be for something you are planning in the future – to meet your expenses for educational aid, a grandeur wedding, a house and lot purchase, or a luxurious vacation. Your personal loan can also be for clearing a debt you previously acquired, or for the consolidation of your other credit commitments, as personal loans provide you with lower rates compared to the rates which credit card companies generally impose.

Secured personal loans will require some collateral for security on the part of the lender, whether in the form of a down payment or some other asset. Unsecured personal loans, on the other hand, do not require any. Consequently, interest rates on secured personal loans are lower compared to unsecured personal loans. Higher risk for non-payment is imposed on the part of the lender in unsecured loans, thus the higher rates. 

Moreover, because of these higher interest rates, the overall cost of the loan also becomes higher. As the interest on unsecured loans not being tax deductible, the interest rates also become higher compared to other kinds of loans.

The amount of money lent to a borrower shall depend on the lending institution and your personal credit rating, as well as other considerations like the duration of the loan, credit history, and purpose for using the money, and sometimes, a borrower’s relationship with a particular financial institution or lender. It is a fact that personal loan is for someone with a good credit rating. The better your credit rating is, the larger the money you can borrow. Also, just like the amount, the better your credit rating is, the lower are the interest rates imposed on your borrowed money.

Personal loans, from the word itself, are used for any personal need that one may have. Essentially, it is easier to apply for this kind of loan than other types of loans. A borrower only has to take precautions in getting personal loans and consider the imposition of higher interest rates, higher costs, and they are not subjected to tax deductions and their strict repayment schedules. Nonetheless, personal loans provide you with a financial resource during the good and bad times of your life.

Moreover, because of these higher interest rates, the overall cost of the loan also becomes higher. As the interest on unsecured loans not being tax deductible, the interest rates also become higher compared to other kinds of loans.

The amount of money lent to a borrower shall depend on the lending institution and your personal credit rating, as well as other considerations like the duration of the loan, credit history, and purpose for using the money, and sometimes, a borrower’s relationship with a particular financial institution or lender. It is a fact that personal loan is for someone with a good credit rating. The better your credit rating is, the larger the money you can borrow. Also, just like the amount, the better your credit rating is, the lower are the interest rates imposed on your borrowed money.

Personal loans, from the word itself, are used for any personal need that one may have. Essentially, it is easier to apply for this kind of loan than other types of loans. A borrower only has to take precautions in getting personal loans and consider the imposition of higher interest rates, higher costs, and they are not subjected to tax deductions and their strict repayment schedules. Nonetheless, personal loans provide you with a financial resource during the good and bad times of your life.

Disclaimer

While all reasonable efforts are made to include accurate and up-to-date information on this website, errors or omissions may still occur. We are not liable for any loss or damage caused by the use of this website. The information on this website is for general information only and should not be taken as professional advice.

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In times of financial need, we may turn to taking loans to help us overcome various cash flow needs. A popular type of loan is unsecured loans. This includes personal loans, business loans and more.

Here, we will share with you everything you need to know about unsecured loans – read on to find out!

What is an unsecured loan and how do unsecured loans work?

An unsecured loan is a loan that does not require collateral. If we compare unsecured loans with secured ones, the biggest difference between a secured loan and unsecured loan is the penalty when you default on your loan.

Secured loans require you to use a high-value asset (such as property, vehicles, etc) as collateral, if you default on your loan, the lender can seize your asset and sell it to cover their losses.

On the other hand, unsecured loans don’t require collateral, and if you default on your loan, your credit score will be adversely impacted. This would likely lower your chances of getting future loans approved.

Unsecured loans in Singapore also tend to have higher interest rates, lower loan amount and a shorter loan tenure as compared to secured loans.

Unsecured loans’ interest rates – flat or reducing

Unsecured loans’ interest rates are either flat or reducing (monthly rest).

For flat rates, interest payments are based on the original loan principal. This means that you pay the same monthly interest throughout the tenure, even as your outstanding loan gets lesser.

For monthly rest, the monthly interest is calculated based on your loan’s outstanding balance. This means that your interest reduces every time you make a payment.

What are the types of unsecured loans?

Here are four types of unsecured loans offered by banks and licensed money lenders:

1. Personal loans

Personal loans are versatile – they do not come with restrictions on what you can use it for. You can use it for various small and large expenses like paying off urgent expenses, weddings, surgeries, vacations, etc.

2. Study loans

Study loans grant you extra financing for your tertiary education. They are typically interest-free while you are studying and you can repay it after you have graduated.

3. Renovation loans

If you’re looking to renovate your house, renovation loans would be able to help you ease your cash flow, so you don’t need to fork out a lump sum in one go. You will need to prove that you are the owner of the house or a family member of the owner. This loan can only be used for renovations.

4. Business loans

It is common for SME owners to look for business financing. Business loans can help you finance that extra inventory or expand your business. To be eligible for an unsecured business term loan, your company must be incorporated in Singapore and generally has to be operating for at least two years.

What are the advantages and disadvantages of unsecured loans?

Advantages:

1. Legal

It is perfectly legal in Singapore to obtain an unsecured loan.

2. No Collateral Required

You don’t have to worry about losing your assets that are backed as collateral should you be unable to repay the loan. The lender will instead consider your credit history and salary to ensure that you are capable of repaying.

3. Fast and easy application process

Licensed money lenders provide a fast and easy application process for small unsecured loans and bigger ones. This means it is ideal for those looking for urgent cash loans.

Disadvantages:

1. Smaller loan amount

As unsecured loans are not backed by collateral, lenders will tend to minimise their risk by offering a smaller loan amount as compared to secured loans.

2. Higher interest

Due to the higher risk borne by lenders, you will have to pay a higher interest rate as compared to secured loans.

Where and how you can apply for an unsecured loan

1. Applying for an unsecured loan with banks

Banks offer interest rates of 3.2% onwards for unsecured loans and would typically conduct a stringent inspection of your credit history before approval.

Before you apply, ensure that you are eligible. If you are a Singapore citizen or Permanent Resident, and have a minimum annual income of $20,000, between 21 to 65 years old, and have a good credit history, you should be able to qualify for an unsecured loan.

Set up a meeting with your bank, and remember to bring the required documents like IC, proof of income and others that your bank may require.

2. Applying for an unsecured loan with licensed money lenders

Licensed money lenders offer unsecured loans in Singapore with competitive interest rates ranging from 1-4% a month, as well as a streamlined application process.

Find out more about your eligibility, documents required as well as loan limits here.

Tips to get the best unsecured loan

Here what you can do to get the best unsecured loans:

1. Maintain a good credit score

Because of the lack of collateral, banks and licensed money lenders will carefully consider your credit history and borrowing history with other lenders to ensure you are able to repay the loan.

Maintaining a good credit score may even lower the interest rates, and increase the loan amount and loan tenure offered to you.

To get a good credit score, repay your loans consistently and on time.

2. Maintain employment

As long as you are employed with a steady source of income, even if your employment is of an informal or freelance nature, you will have a higher chance of getting an unsecured loan.

Looking for unsecured loans with low interest rates?

96BM Credit offers the best unsecured loans with competitive rates and loan terms. Apply for a loan with us now.

 

Everyone faces some degree of financial uncertainty in their lives, some more often than others. The most common solution for most of us is to obtain a loan in Singapore. This can be in the form of a casual arrangement with a friend or relative, or a formal loan from a bank or licensed moneylender.

Formal loans come with specific criteria for repayment, including the additional cost of interest rates above the loan principal. These interest rates are not static and depend on several criteria.

The first of these is the prevailing economic environment; rates are lower during recession and higher during economic booms. The second includes unique and unpredictable factors. For example, events like the Covid pandemic can cause widespread instability that can lead to lower rates.

There are several personal criteria as well. An applicant’s financial standing, level of debt, employment status, and recent financial history all affect the interest rates on a loan.

Before applying for a loan, you should also consider whether a loan from a bank or licensed money lender is the better option for you. If you are facing financial problems, it can help you ride through the rough period.

Why is it important to compare loan SG interest rates?

The short answer to that question is – so you don’t throw away your hard-earned money.

Understand that rates vary by type of lender, the type of loan (personal, business, consolidation, etc.), loan term (minimum repayment period), and other factors. Savvy borrowers also keep track of cyclic trends in interest rates, which can be used to predict when the figure will rise or fall.

Remember, a seemingly miniscule difference of just 0.1% can snowball into a significant amount over the course of the loan.

Rates charged by licensed moneylenders for loans SG

The typical interest rate charged by licensed moneylenders varies between 1% and 4% per month. This upper limit of 4% is a figure set by the Ministry of Law.

However, a licensed money lender is allowed to charge an additional late interest rate of 4% per month on overdue payments. They may also impose a late repayment penalty fee, capped at $60 per month. A 10% processing fee may also be imposed when you take up the loan.

These are some factors that may affect interest rates offered to borrowers:

● Credit score – based on the current and recent financial history of the applicant

● Income – a higher income generally indicates a lower-risk applicant

● Credit utilisation with other lenders – every person is given a debt limit and the closer to that limit they get, the higher the risk

How are money lenders’ interest rates calculated?

Private money lenders do not use a flat rate method to calculate interest. Instead, they apply the reducing balance method. While the calculations mat be simpler with a flat rate, the reducing balance method saves you money.

Let us consider an example where a borrower takes a $3,000 loan to be repaid in 3 months.

With 1% p.a. flat interest rate calculation

● Month 1 – Outstanding amount: $3,000; Interest: $2.50; Instalment paid: $1,002.50

● Month 2 – Outstanding amount: $2,000; Interest: $2.50; Instalment paid: $1,002.50

● Month 3 – Outstanding amount: $1,000; Interest: $2.50; Instalment paid: $1,002.50

The minimum total amount paid over the course of 3 months is $3,007.50.

With reducing balance calculation

● Month 1 – Outstanding amount: $2000.83; Interest: $2.50; Instalment paid: $1,001.67

● Month 2 – Outstanding amount: $1,000.83; Interest: $1.67; Instalment paid: $1,001.67

● Month 3 – Outstanding amount: $1,001.66; Interest: $0.83; Instalment paid: $1,001.66

The minimum total amount paid over the course of 3 months is $3,005.

So, the borrower would have paid 50% more interest using the flat rate method.

What are the interest rates charged by banks?

Bank loan interest rates generally range from 3.5% to 11% per annum on paper. After including fixed charges, processing fees and other miscellaneous expenses, this figure may rise to between 6.5% and 20% p.a.

As with loans from licensed lenders, you should consider the fine print and not just the advertised rates. The most important piece of information you need is the effective interest rate (EIR).

Effective interest rate (EIR)

EIR gives you a more accurate impression of the cost of your loan than just the advertised rate. It factors in mandatory costs such as processing and administrative fees.

Let us again consider an example where a borrower takes a $3,000 loan to be repaid in 3 months. The interest rate is 10% but there is a bank processing fee of 1%.

The total amount to be repaid = Principal + Interest + Processing fee = $3,000 + $300 + $30 = $3,330

The EIR here is 11% despite the official interest rate of 10%.

Remember that the repayment frequency and number of instalments also affect the total amount to be repaid. This is because interest is calculated with every instalment – you pay more in interest every time.

Things to consider before taking a loan SG from banks or money lenders

Loans can be a wonderful tool for financial independence if you make good use of them. Otherwise, they can become a source of additional financial stress instead.

Always be aware of the additional costs of a loan. This may include:

● Late payment interest rates and penalties

● Administrative fees and processing fees

There are also other factors to consider:

● Credit history – Banks will immediately refuse a loan to anyone with a poor credit rating. Money lenders do not usually consider your rating before extending a loan. However, they are generally more expensive so always try to get a bank loan first.

● Credibility of lender – Not all money lenders are the same. Some offer greater flexibility and terms than others. It’s important to choose the right lender. Check out more tips about obtaining the right loan here.

We understand that choosing the right loan and comparing rates can be time-consuming and confusing. This is why we are here to help.

Get an instant loan with reasonable interest rates with us – reach out to us today.

You’ve come to the right place.

96 Credit is a legal moneylender that provides convenient and seamless online loans.

Receive your loan in just a few simple and easy steps.

All you have to do is send in your application and get your loan approved in under 20 minutes.

Start your online loan process with just a click of a button.

Get Your Instant Online Loan in Singapore Sorted in 3 Easy Steps

  1. Send in an online enquiry through the web form with your requirements and loan needs
  2. Our legal moneylender officer will be in contact with you within 15 minutes to schedule a same day appointment
  3. Head down to our office and get a fast loan approval within 20 minutes.

Why Would You Need an Instant Online Loan in Singapore?

Sometimes we find ourselves in need of urgent cash due to unforeseen circumstances. Local banks may not be an option as they do not grant fast loan approvals and will usually take a few days for the loan to be disbursed. On the other hand, a legal moneylender will be able to offer same-day loan approvals for your emergency needs.

Situations that require an instant online loan in Singapore:

  • Utility Bills
  • Rent
  • Holidays
  • Emergency medical expenses
  • Home renovations
  • Wedding banquets

What Documentation Do You Need to Get Your Loan Approved?

To be eligible for an instant loan, you should have a stable monthly income statement. If you require extra assistance, our legal moneylender officers are here to aid our clients through their unique situations.

When visiting our office, do bring along your NRIC and income statement for seamless loan approval.

What Types of Loans Can Be Approved Through an Online Loan Application?

We offer online approvals for all loans and situations. All you have to do is indicate the type of loan you require on your enquiry form and our loan officers will assist you with the process.

Depending on your employment and financial status, some loans may be easier to obtain, such as a Payday Loan. For further enquiry, get in touch with one of our experienced officers.

Benefits of an Instant Online Loan in Singapore with Credit96

  • Expedited application approval
  • Caters to all credit scores
  • Quick and convenient
  • Negotiable loan terms

Frequently Asked Questions on Our Instant Online Loans

How does an instant online loan in Singapore work?

Online loans allow clients to make their first enquiry through a web form. Once their requirements and needs are accessed, a loan officer will get in touch with the client within 15 minutes to schedule an appointment in our office to receive the loan.

Am I eligible for a loan?

To be eligible for a loan, you will need to be:

  • A Singapore Citizen, Permanent Resident, or a Foreigner with a valid permit
  • At least 18 years of age
  • Employed with a monthly income

Am I still eligible for a loan with a poor credit score?

Depending on the loan required, we do offer loans no matter the credit score. Get in touch with us for further enquiry.

How fast can I receive my loan?

Once the client has signed their loan contract at our office, the funds will be immediately disbursed.