If you reside in Singapore and if you are in need of some emergency funds to meet an urgent personal expense, you typically have two options available to you. The first, of course, is the traditional personal loan that you can avail from banks. The other alternative – one that is almost exclusive to Singapore – is financing from licensed financial institutions. The distinction between banks and financial institutions exists everywhere else in the world too, but in Singapore, the distinction is a little sharper.
Banks in Singapore are established financial institutions, much like banks elsewhere. Licensed financial institutions, on the other hand, are businessmen and entrepreneurs who are legally registered as such in the Registry of financial institutions. If you are in need of some additional funds to meet some of your larger personal expenses, you could choose to borrow money from banks or licensed financial institutions.
But before you make your decision, it is best to know how these two categories of lenders differ from each other. So, let’s take a closer look at the financial institutions vs. banks debate.
The amount they lend
Broadly speaking, banks have the flexibility and the resources to lend larger sums of money than private financial institutions. This is because banks, unlike lenders, have access to a wide variety of deployable funds that come from deposits and other monetary products and services.
Financial institutions, on the other hand, tend to loan out their own funds, so their pool of capital is much smaller. This makes them ideal for people who are looking to borrow smaller sums on a shorter basis.
The ease of fund disbursal
Banks take a while to scrutinise your application, evaluate your risk profile and determine your eligibility. For this reason, the funds you borrow from a bank may take a few business days to be disbursed to your account. So, if you are looking for a financing option that is not all that urgent, borrowing from a bank could be a good choice.
On the contrary, if time is of the essence, a licensed financial institution may prove to be more useful, because they are famous for approving your application and disbursing the funds on the very same day.
You have probably heard a great deal about how your credit history plays a key role in determining your eligibility for a personal loan. This is typically more true when you resort to bank financing. Banks, which offer higher amounts as loans, need to doubly ensure that the borrowers are capable of repaying the amount. That is why they take into account the borrower’s credit history before deciding on factors like the rate of interest, the amount of loan, and in some cases, even if to grant a loan at all.
Financial institutions are a bit more flexible when it comes to credit checks, making it possible even for people with poorer credit score to avail loans. Of course, they do check the validity of your employment and income, but there is not too much scrutiny involved.
It is no secret that the eligibility criteria that you need to meet to borrow loans from a bank tend to be a tad bit stricter. This is primarily because banks mobilise funds from other monetary products to disburse loans, and also because they tend to lend higher amounts.
With financial institutions, the eligibility criteria may be a bit more relaxed. They generally require details and proofs of your professional identity, employment and income.
Rate of interest
When it comes to the rate of interest that can be charged on loans, both banks and financial institutions in Singapore are strictly regulated. Banks generally charge interest on an annual basis, at rates ranging from 4% to 10% per annum. The better your credit score, the higher your chances are of getting a more affordable rate of interest.
Financial institutions tend to charge a higher rate of interest, broadly speaking. Given the relaxed eligibility criteria and the easier credit checks, this is understandable. Guidelines in Singapore state that financial institutions can charge 4% interest per month.
Level of transparency
Some people might think that it is easier to find out all the necessary details of a loan from a bank rather than a loan that is offered by a financial institution (how to avoid a scam?). However, Lendela’s service is helping you with this part of the process – no matter if you are looking for a bank loan or a loan from a financial institution, you can always count on full transparency to help you make a fair comparison of your personalised offers, and select the loan that suits your needs the best.
Financial institutions vs. banks: Which should you choose?
Given the differences between the two categories of lenders, it makes sense to opt for a financial institution’s product if you want to borrow a smaller amount more urgently, or if your credit score is not all that great.
On the other hand, if you want to borrow a larger sum and wish to lower the overall cost of your debt, a bank loan could be the better option for you. Make sure that you have a decent or great credit score before you decide to go “all in” for a bank loan, as that increases the chances of final approval.