Personal loans are common among Singaporeans. This is because personal loans are able to give borrowers the flexibility and freedom they need.
What can you use a personal loan for?
Personal loans can be used for any situation, from car breakdowns to medical emergencies to credit card bill payments. Usually, the bank or the licensed money lender will not ask for the purpose of your loan.
Are you unsure if a personal loan is the right choice for you?
A personal loan can be a great way to get ahead, but it’s essential to ensure you’re taking on the right amount of debt. That’s why we’ve put together this guide on everything you need to know before applying for a personal loan.
Read our guide to make a better financial decision.
What Is A Personal Loan?
A personal loan is a type of unsecured loan, meaning that it is not backed by any collateral.
Personal loans are also sometimes referred to as signature loans or good faith loans. The main advantage of personal loans is that they can be used for various purposes, including consolidation of debt, funding a home improvement project, or paying for a wedding or vacation.
In addition, personal loans often come with fixed interest rates, which means that your monthly payments will stay the same even if interest rates rise.
Personal loans have disadvantages, though. The main downside is that they typically have shorter repayment terms than other types of loans, such as mortgages and auto loans. As a result, you may end up paying more in interest over the life of the loan.
How Much Can I Borrow For Personal Loans?
How much you can borrow depends on your income and citizenship status:
| Borrower’s annual income | Singapore Citizens and Permanent Residents | Foreigners residing in Singapore |
|---|---|---|
| Less than $10,000 | $3,000 | $500 |
| At least $10,000 and less than $20,000 | $3,000 | $3,000 |
| At least $20,000 and above | 6 times monthly income | 6 times monthly income |
These are just maximum amounts, meaning your loan provider can legally set more stringent conditions. For example, some banks only lend you four times your monthly income if your annual income is between $20,000 and $30,000 per month.
Things To Consider When Applying For A Personal Loan
Applying for a personal loan can be a great way to get the cash you need to consolidate debt, pay for a significant purchase, or cover unexpected expenses. But before you sign on the dotted line, it’s essential to consider the variables below:
Terms and Conditions
1. Interest rates
Personal loan interest rates can vary widely, so it’s important to shop around and compare offers before deciding on a loan.
The maximum interest rate for a legal loan in Singapore is 4% of the outstanding balance.
So, if your initial loan was $10,000, the first month’s interest may be up to 4% of that amount – adding up to $400. However, licensed moneylenders will deduct a processing fee from your loan before giving you the cash. This is also an important method to differentiate between a real lender and a loan scam. Scammers will ask you for money to approve the loan. Legal lenders will not.
2. Installments
Installments are the payments you’ll have to make each month to reimburse your loan. Use a personal loan calculator to ensure they fit in your budget.
3. Loan term
The loan term is the length of time you have to repay your loan.
Shorter tenures typically have lower interest rates but may require higher monthly payments. Longer plans usually have higher interest rates but may give you more time to repay your loan. In Singapore, personal loan tenures reach a maximum of five years, though 36 months is a much more common maximum length.
4. Repayment schedule
Most personal loans are repaid in equal monthly installments, but some lenders may allow you to repay your loan in a lump sum or make additional payments to reduce your interest costs.
5. Admin fee
Some lenders may charge an admin, which is typically a percentage of the loan amount. The maximum admin fee for a legal loan is 10%, which will be retained from the amount you receive. That means a licensed moneylender in Singapore mustn’t ask for this admin fee as a cash advance or a bribe for better loan conditions.
6. Late payment fee
If you miss a payment, you may be charged a late payment fee by your lender.
In Singapore, the maximum fee is $60, plus a maximum of 4% late interest rate on the payment you’re late with.
Let’s say you’re borrowing $30,000 for your wedding.
7. Credit Score
| Score Range | Risk Grade | Probability of Default (Min) | Max |
|---|---|---|---|
| 1911-2000 | AA | 0.00% | 0.27% |
| 1844-1910 | BB | 0.27% | 0.67% |
| 1825-1843 | CC | 0.67% | 0.88% |
| 1813-1824 | DD | 0.88% | 1.03% |
| 1782-1812 | EE | 1.03% | 1.58% |
| 1755-1781 | FF | 1.58% | 2.28% |
| 1724-1754 | GG | 2.28% | 3.46% |
| 1000-1723 | HH | 3.46% | 100.00% |
Many think their credit score only matters when applying for a mortgage or a car loan. However, your credit score can also impact your ability to get approved for a personal loan. Personal loans are typically unsecured, which means that there’s no collateral backing up the loan.
As a result, lenders view personal loans as a higher risk than other types of loans.
Banks typically require borrowers to have a good or excellent credit score to offset this risk.
If you plan to apply for a personal loan, check your credit score beforehand. That way, you’ll know what to expect, and you can work on improving your score if necessary.
What if the bank rejects your personal loan application?
There is another option for personal loans. Licensed moneylenders in Singapore do offer personal loans, and the good news is that they are usually more lenient with their borrowers.
The benefits of applying from a licensed moneylender are fast approvals within 15 minutes and, they are open to borrowers with bad credit. Borrowers can also tailor their loans for a more manageable monthly loan installment.
8. Your Loan Provider
When looking for a personal loan, you should consider all your options. After all, not all lenders are created equal. Some may offer lower interest rates, while others may have more flexible repayment terms. And then there are the hidden fees to consider.
Before signing your loan contract, you should ask your loan officer to explain every single detail. A good loan officer should be patient and knowledgeable in finance.
So, how do you know which lender is right for you? How much should you borrow?
Try our free loan calculator to view your monthly repayments. To find out more about loans and financial products, click here.
About Lending Bee
In a volatile, uncertain, complex and ambiguous world, you can count on one thing – your partner in credit, Lending Bee. Just like an industrious bee, we are committed to helping each and every customer access credit – quickly, easily and seamlessly.
