Are you looking to apply for a personal loan? Know more about it and find out how a personal loan works in Singapore. Whatever the reason behind a personal loan- to finance big events of life or to pay for a holiday, a personal loan is a good option that comes with a lot of variety to choose from.

LoanBuddy shares how it works and why you should get a personal loan.

Click here to read “Is a personal loan same as debt consolidation loan?”

Why are people taking personal loans increasingly in Singapore?

It’s very common in Singapore to get a personal loan from a bank. Some may take it to fund their financial habits while others may want to carefully finance an item or activity to promote long-term financial goals. Generally, when you don’t have the cash available than what you require currently, personal loans offer financial leverage to cover certain financial situations.

Below are the reasons why people prefer to take a personal loan over other types of loans in Singapore-

• Paying off credit card bills– The most common reason why Singaporeans take a personal loan is to consolidate their credit card bills. Why? In Singapore, you need to pay at least 25% of your outstanding amount every year. For example, if you have an outstanding amount of $20,000 on credit cards, you will end up paying $5,000 a year. So commonly, people tend to consolidate and pay off their credit card bills in full by obtaining a personal loan rather than paying high-interest charges.
• COE renewing– Renewal of a COE (certificate of entitlement) cannot be done simply through a car loan. Nowadays COE prices have increased to an extent where the cost of COE is costlier than the vehicle itself. In such a situation, turning to a personal loan is a good option. Currently, the COE prices are near $100,000, to finance this cost, a personal loan could be worth considering.
• To pay for events– Events like weddings, funerals, and medical urgency are something one cannot compromise when it comes to spending. Where you fall short on cash in hand, it might be worth obtaining a personal loan. Besides this, some people consider personal loans to finance their vacations. Most middle-income earners in Singapore take one or two tours every year and few of them fund it through a personal loan.

How does a personal loan work in Singapore?

Similar to other types of loans, a personal loan works the same. You simply borrow a certain amount of money from the bank or a financial institution and repay it over a set term. You can start paying for all the needs you have in line. You can use it for a range of expenses like medical expenses, vehicle repairs, education expenses, or debt consolidation.

A personal loan covers your short-term or long-term financial needs. All you need to do is apply to a lender who assesses your loan capability and suitability. Once the application is approved, the lender will disburse the loan quickly. Repayments of the loan include interest and other fees applicable. The entire loan will be repaid over the set tenure if you make all repayments on time.

Singapore-Credit Ratings

A Roadmap to Obtaining a Personal Loan in 5 Steps

Step 1: Explore different loan options

Exploring different loan options is the first step toward getting a loan. Here are the types of personal loans you can avail of in Singapore-

• Personal line of credit– Under this option, you can draw as much as you can at any time of the loan tenure. The maximum amount that can be borrowed is fixed at the time of agreement.
• Personal overdraft– Similar to a personal line of credit, you can withdraw as much amount as you need under a personal overdraft. The only difference here is the overdraft account is attached to your transaction account. You are charged an annual or monthly fee for the use of the credit line but interest won’t be charged unless you use the overdraft.
• Secured and unsecured personal loans– Under secured personal loans, you will need to provide your assets as collateral. Whereas in an unsecured loan, you don’t need to give any collateral. Interest charges are usually high in an unsecured personal loan.
• Short-term personal loans– These are usually smaller loans to fund a short-term expense. It may involve a borrowing amount of up to $2,000 which is to be paid back in 60 days. The turnaround period of a short-term loan is also very fast, generally within 24 hours. You should consider this loan when you are left with no other options.

Step 2:  Compare the different options

There are many websites available on interest that conduct a comparison among various loan products. However, beware of scams as they usually charge commissions from banks to promote their loans. LoanBuddy gives an unbiased comparison of different rates and loan terms. Here’s how you can compare loan options from different banks and financial institutions.

• Loan amount– Check what is the minimum and maximum amount that you can apply and if it is sufficient to pay your expenses off.
• Loan terms– Check what are the minimum and largest loan tenure. Usually, a term ranges between 1 and 7 years. Choose according to your needs and suitability.
• Fees– Evaluate what are the other fees applicable to the loan. Fees may include application fees, establishment fees, and any ongoing fees which may range from monthly to annually. These fees are incorporated into your loan and affect the annual rate of the loan.
• Interest rate– See if the interest rates are competitive for different banks.
• Repayment– After you see the loan amount, interest rate, and terms, you should use a repayment calculator to check if repayment installments are under your budget. You must decide the frequency and time of repayment. It could be weekly, fortnightly, monthly, quarterly, or even annually. Also, check if you can repay the loan without any penalty.

Step 3: Eligibility Criteria

Before going forward with the loan application, you must check whether you are eligible to get a personal loan in Singapore.

In Singapore, you must be at least 21 years of age to apply for a personal loan. Your per annum salary should be above $30,000 if you are a citizen or a PR. However, you can still apply for a loan of a lower amount if your income is below $30,000 but up to $20,000.

If you are a foreign applicant, your salary must range between $40k and $60k to apply for a personal loan. There are provisions to get a loan even if the salary is low. Read our eligibility article to see more.

Most important of all, you must have a healthy credit profile to be eligible to apply. Bankers and financial institutions assess the application based on the applicant’s credit score.

Step 4: Apply for the loan

Once you select the lender, your final step is to apply. You can apply by visiting the branch office as well over the phone. The banker will ask you to submit specific documents to complete the process. These documents generally include-

• Your ID–  employment pass or NRIC
• Address proof– residential address, rent agreement, utility bills, mortgage bills.
• Income proof– Salary slips, bank statement of past 6 months, latest CPF contribution statement, latest income tax NOA.

Step 5: Approval from the bank

How much time it will take to disburse a loan varies from bank to bank. Some may issue the loan instantly after checking the documents while some of them may take weeks to process your application. You must remember that full approval is received only when you have provided accurate and sufficient documents.

Also Read The top 5 profitable businesses to start in Singapore

What are the benefits of a personal loan in Singapore?

There are many advantages worth looking at while deciding on a loan like a personal loan.

1. Fixed repayment schedules- Personal loans come with fixed installments and fixed interest rates. The repayment and monthly interest charges are scheduled at the beginning of the loan. Once your application is approved, you get to learn how much the repayment amount monthly will be, how many installments will be required to pay off in full, and the total interest accruing over the life of the loan tenure.
2. You can cover unexpected big expenses- Some expenses are such of a nature that cannot be avoided at all. These expenses are not temporary and hence need to be paid immediately. When such big events take place, faster funding like personal loans can be of great help. How? That’s because most online lending institutions disburse the loan amount the exact day when you accept the loan offer. You can consider a personal loan for an unexpected expense like-
3. Huge medical bills
4. Immediate repairs or renovation of home or vehicle repairs if not covered by auto insurance already.
5. Pet emergencies can also be financed.
6. Pay for the wedding, ceremony ring, and reception.
7. No collateral needed- Secured loans come with the risk of securing your belongings with banks and financial institutions. However, a personal loan doesn’t require collateral like your home, assets, or other valuable personal belongings. Whether you qualify for a loan or not is simply dependent on your creditworthiness which is checked through your credit score.