What Do You Need To Apply For A Personal Loan In Singapore?
In difficult economic times, we find ourselves in unexpected circumstances that need immediate financial help, such as family and medical emergencies, debt consolidation, educational expenses, and investment opportunities. In such times, taking out a personal loan in Singapore is a viable option to relieve your financial burden. Unlike mortgages and other secured loans, personal loans are unsecured, meaning you do not have to put any collateral, such as your home. This implies that your lender cannot directly seize your assets if you default on the loan. However, this doesn’t mean a personal loan is a free lunch.
First, personal loans charge a higher interest rate than secured loans. Secondly, your credit score will be significantly damaged when you fail to repay your money. However, personal loans are a savior to many Singaporeans as they can help in emergencies due to their fast availability.
In this guide, we’ll answer the question, “What do you need to apply for a personal loan in Singapore?” Read on.
What Is A Personal Loan And How Does It Work?
A personal loan is an unsecured loan where you borrow money to support your needs. It’s unsecured since it’s not bonded to collateral such as a house. This implies that the lender cannot seize your assets in the event you default on the loan. On the other hand, a secured loan is a mortgage loan where a lender can seize your assets when you default on the loan.
So, how does a personal loan work? When you borrow a personal loan, you get a lump sum that you’ll repay over a given period. Most personal loans have fixed repayment periods and interest rates. This implies that, unlike credit card debts, you must repay your personal loan using a series of predetermined monthly repayment for a given period.
Most personal loans are fully amortized, implying their monthly payments include interest charges and principal repayment. Amortized loans make it easy to budget because there are no balloon payments at the end of the loan tenure.
Types Of Personal Loans In Singapore
Before deciding the personal loan type that suits your financial needs, below are the four types of personal loans in Singapore.
Personal Instalment Loan
A personal instalment loan, also known as a term loan, is a lump sum amount that you can borrow from a licensed money lender or a bank in Singapore. A personal instalment loan is the most common personal loan type in the lending industry. Depending on the lender, it can come in different names, but the principle remains the same.
It is paid in fixed instalments, usually of up to 60 months, and includes a one-time processing fee ranging between 0%-10 percent of the principal amount. Moreover, the interest rates could vary across licensed money lenders and banks.
Personal instalment loans are ideal when you need a significant amount to cover a sudden and unavoidable huge expense such as family and medical emergencies or paying off debt.
Personal Line Of Credit
A personal line of credit is a personal loan type allowing you to withdraw from the account anytime you, please. It’s very useful in emergencies when you need to instantly access your funds. Usually, the maximum amount that you can withdraw from your account is two times your monthly income.
The caution is that it attracts annual fees ranging from $60 to $120. Besides, interest is charged every time you withdraw money via internet banking, ATM, or by visiting your physical bank branch. Normally the interest rates for a personal line of credit in Singapore vary from 18-22% annually. You’ll also be charged an interest rate when you borrow the funds, and when you’ve fully repaid the loan, the bank will cease charging interest. This loan doesn’t have a fixed tenure repayment period, so you’ll decide how long you’ll want to repay the loan. However, the faster you repay, the less the expense.
A balance transfer loan allows you to transfer your current debt from several credit card debts to a single low-interest credit line or account. The loan is normally used to help consolidate multiple debts and reduce interest payments. This means that if you repay the credit card balances before the end of the balance transfer, you won’t pay any interest.
A balance transfer is akin to an interest-free loan that allows you to better manage your monthly repayments and debt. The repayment period varies from bank to bank, with most offering 6-month and 12-month terms. Some also offer 3-month and 18-month terms. The disadvantage of a balance transfer is that the balance can snowball if not fully repaid by the end of the loan tenure. This is because the interest rate changes back to the original rate of the credit card, which can be as high as 30%
Debt Consolidation Plan
The debt consolidation plan is a debt restructuring plan helping you to consolidate all your unsecured debts at different financial institutions into a single one at a lower interest rate. The main difference between a debt consolidation plan and a balance transfer is that the former is used when the debt surpasses 12 times your monthly income. The debt consolidation plan will help manage debts better in such a scenario.
It’s important to note that you can only have a single debt consolidation plan active at any time. You can select to refinance your current debt consolidation plan with another bank after three months. The plan only applies to loans borrowed from participating financial institutions in Singapore. Another downside is that some unsecured loans aren’t included in the plan. These include:
- Renovation loans
- Joint accounts
- Medical loans
- Education loans
- Credit facilities given for business purposes
How Much Can You Borrow?
Banks and financial institutions in Singapore may let you borrow up to six times your monthly salary for personal loans. Another major question among homeowners in Singapore is, “how much can I borrow for a home loan in Singapore?” With an HDB loan, you can borrow up to 80% of the property’s value or purchase price, depending on which is lower.
The maximum LTV for bank loans in Singapore is 75%. The total debt servicing ratio is currently set at 55% of your monthly income, and the maximum Mortgage Servicing Ratio allowable for HDB home and bank loans is 30%.
What Documents Do You Need To Apply For A Loan?
To be eligible for a personal loan in Singapore, you must have all the documents to get a loan. It’s important to know the documents required and how much you can borrow to help in the application process. The required documents depend on the bank or licensed money lender that you select, but generally, they’ll need these essentials:
Proof Of Income
- Contribution statement to your CPF
- Latest income tax Notice of Assessment
- Latest computerised payslip
- Bank statements
- Other income statements required
- Employment pass card
- CPF statement
- Employment Pass
What To Consider Before Applying for A Loan
When applying for a personal loan in Singapore, most people compare interest rates from several lenders. However, other things must be considered before applying for a personal loan.
- Put your amount to good use
- What’s the interest rate?
- Understand the charges
- How much can I borrow?
- How soon will I get the funds?
- How reputable is the lender?
- Is the early repayment fee viable?
- Can it affect my credit card limit?
- Can it affect my credit score?
- Can I afford the repayments?
BST Credit is your best bet if you’re looking for the best personal loan in Singapore. When you need funds to offset an emergency, a personal loan can come in handy in hard times. We offer one of the lowest interest rates on a personal loan in Singapore, fast availability, and favourable terms. Ensure you have all the right documents and use your money to good use before applying.