If you are looking for urgent cash, maybe to handle an emergency, renovate your house, or merge your spiralling debts, one of the funding buttons you can press is that of an unsecured loan. Because the loan does not require collateral, you can borrow without worrying about losing personal assets. Keep reading to learn more about unsecured loan in Singapore in 2021.
Unsecured loan in Singapore : Common Characteristics
The most notable attribute of an unsecured loan in Singapore is that you do not require collateral to get it approved by a licensed lender. Other notable characteristics of unsecured loans include:
- Multi-Purpose: This implies that you can use the funds for a wide range of things, from funding your honeymoon to merging the current debts from various financial institutions.
- Lenders Rely on Your Creditworthiness: To determine how much you will borrow, lenders put a lot of weight on your credit score. The higher the credit score, the more you can borrow from licensed financial institutions in Singapore.
- You Need Proof of Income to Get an Unsecured Loan in Singapore: As lenders check your credit score, they also want to know more about your income so that only what you can repay comfortably is approved.
- Unsecured Loans can be Revolving or Term Loans: A term loan is a type of credit that requires consistent payment over a specific period. A good example of a term loan is a personal loan. Revolving loans, on the other hand, is an arrangement where lenders agree to lend a borrower cash of up to a specific limit. The loan comes with a minimum monthly payment, but there is no specific period to clear the loan. So, you can clear it as fast or slowly as possible, but remember that interest keeps accumulating. Good examples of revolving unsecured loans are credit card loans and lines of credit.
Types of unsecured Loans in Singapore
There are many types of unsecured loans that you can take in Singapore (discover here why Lendela is legit). Here are the commonest three:
This is a general-purpose type of loan advanced to a borrower by a lender and offers you a free hand on how to use the money. Once the loan is approved, the money is released into your checking account, and you can use it for various purposes, such as paying holiday costs, buying a car, or paying for tertiary education. Most lenders in Singapore can lend citizens personal loans for up to ten times their income. However, it also depends on the respective borrower’s credit score and repayment ability.
Line of Credit
A line of credit, also referred to as Cashline in some institutions, is a type of arrangement where the lender offers some cash that you can borrow. See – the cash is always on standby for you to borrow when in need.
The cash operates as a revolving fund and is available for re-borrowing as others repay. It also implies that there is no specific term for repayment, and you only pay interest on the amount borrowed. Although the interest rates of the line of credit are usually higher than those of personal loans, they are lower than credit card charges.
A line of credit is considered a great source of funds for people with periodic expenses. Also, people who are not sure when next they will require the funds also find this type of unsecured loan in Singapore a good option because credit is only charged when you draw from the revolving fund.
Debt Consolidation Plan
This is a type of debt refinancing that allows borrowers to wrap their unsecured loans, especially the high interest ones, into a single loan. By consolidating the debts, you will not risk forgetting some of them, defaulting others, and getting penalised with fines.
Once a debt consolidation plan is approved by a lender, the outstanding balances are moved to the debt consolidation plan account, and then cleared. Note that although the multiple debts will no longer be visible, they have not disappeared. Indeed, you will have a bigger debt because the debt consolidation plan is adding a new type of credit. However, it will be easier to clear because of better terms, such as lower interest rates and probably, a longer repayment period.
Debt consolidation loans are recommended for Singaporeans with combined loan balances that exceed 12 times their monthly income. After the approval of the debt consolidation loan, you will not be able to access more credit until the debt is reduced to manageable levels. Therefore, you might want to rethink your budget during the entire period of paying the debt consolidation loan.
Rules on Unsecured Loans in Singapore
Because unsecured loans are not backed by collateral, people tend to easily rack up debts, which can ultimately become challenging to pay and damage their credit score (click here to know why Lendela is safe). This is why the Singapore government has provided a raft of rules to help ensure that borrowers only go for what they can comfortably repay. Here are some of the measures:
1. If a borrower's total unsecured debt surpasses the borrowing limit for three months, he/she:-
- Cannot apply for a new unsecured facility, credit card or raise the credit limit.
- Cannot use the existing draw dawn or credit card on an unsecured facility.
The borrowing limit for Singapore residents was 18 times their monthly income but was revised down to 12 times in June 2019. The purpose of the reduction is to help reduce long-term reliance on unsecured credit.
2. For persons who go beyond 60 days past the set due date on their unsecured facility, they cannot:-
- Apply for new credit cards or raise their credit limit.
- Use the current credit cards or draw-down on unsecured facilities.
These two efforts are aimed at helping prevent debt from growing exponentially and making borrowers unable to handle them.
3. If you have unpaid credit card bills and the associated revolving unsecured credit facilities are already full, your licensed financial institution has to tell you how the debt will look like if not cleared. To do this, your lender will send a statement with the following details.
- The full amount and time required to clear the debt if you decide to only pay the lowest (minimum) amount acceptable every month.
- The amount of debt that will have accumulated in six months if no payment is made.
For Singapore residents who find themselves getting swirled by debts, one of the best options is using debt consolidation plans. The plans involve taking another loan to clear all unsecured loans in Singapore, implying that you are left only with a single and low-interest loan that is easier to handle.
4. Using Credit Rating Checks
One important item used by lenders to determine the amount to lend you is your creditworthiness. In Singapore, the credit score is calculated by credit agencies based on the information they get about your credit history. So, every lender is required to:
- Check the borrower’s credit score before issuing an unsecured credit facility.
- Look at the borrower’s creditworthiness before raising his/her credit limit.
- Confirm the borrower’s credit score from bureaus after getting information that looks doubtful.
To calculate people’s credit scores, bureaus gather information from different financial organisations on aggregate credit limits, credit mix, and outstanding balances. They also get reports on individual's late payments, defaults and even bankruptcies.
When banks get your credit report, they are able to determine the amount of money to lend you based on the level of posed risks. So, if you want to get a higher amount of unsecured loans and at lower interest rates, it is important to start by improving your credit score.
Unsecured Loan in Singapore : How to Apply?
As you can see, there are many types of unsecured loans in Singapore, but the process of applying can be challenging (click here to know more about secured loans in Singapore). For some people, this involves reviewing dozens of banks and financial institutions and preparing loads of applications. The process ends up being lengthy and expensive. Now, you do not have to follow the long and illustrious journey because Lendela is only a click away!
Lendela, a loan comparison platform, was designed with the primary goal of helping borrowers get the best possible loan in a fast way. Lendela works with banks and financial institutions in Singapore and the entire application process takes a very short moment. See the main steps involved in a loan comparison application through Lendela:
- Visit Lendela's website to submit a short application (this can be completed in only a couple of minutes)
- The application is sent to multiple banks and financial institutions who return with their offers
- Compare your offers and select the preferred one, after which you can book your appointment with the selected lender
- Sign the loan agreement at the lender's office – the money is deposited in your account in the case of a personal loan, the contractor’s account in the case of home renovation, or college in the case of a student loan.
When applying for an unsecured loan, lenders are mainly interested in knowing about your repayment capability and creditworthiness (all about credit score in Singapore). This is why you should try to ensure your credit score is at its highest possible mark and also work with Lendela to simplify the loan application process. Remember that although there is no collateral needed to get an unsecured loan, it is crucial to strictly follow the agreed repayment schedule as a way of enhancing your credit score.