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!
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 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.
Here are four types of unsecured loans offered by banks and licensed money lenders:
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.
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.
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.
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.
It is perfectly legal in Singapore to obtain an unsecured loan.
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.
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.
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.
Due to the higher risk borne by lenders, you will have to pay a higher interest rate as compared to secured loans.
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.
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.
Here what you can do to get the best unsecured loans:
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.
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.
96BM Credit offers the best unsecured loans with competitive rates and loan terms. Apply for a loan with us now.