Unlike other types of loans, personal loans are not secured using collateral like land or property. Personal loans are unsecured loans based on the borrower’s integrity and financial ability. This means that as the borrower, your property is not at risk of being seized should you be unable to make repayments in time.
However great this may sound, personal loans actually come with higher interest rates relative to loans like mortgage loans, which are secured loans. Furthermore, defaulting on your personal loan will harm your credit score, potentially bringing you problems in obtaining credit cards and other loans in the future.
How Personal loans work
In Singapore, personal loans usually come with a fixed interest rate and the repayment period. When you take out a personal loan from a financial institution or a licensed money lender, you will receive a sum of money for which you will have to repay through a span of monthly instalments. The repayment amount is estimated by summing the principal loan amount and the interest on the principal amount.
Now that you know the basics of how they generally work, you can now learn about how to take a personal loan.
5 easy steps for taking a personal loan in Singapore
Taking a personal loan can seem like a daunting and complicated process, but it need not be so. From the documents required to the actual application process, our simple five-step guide will cover everything you need to know in order to take a personal loan in Singapore.
1. Determine your loan requirement
Firstly, you need to determine how much you need to loan. With this amount, compare your loan options – compare the loan term, interest rates, repayment amount, and any other extra fees across the options. Do remember to read through the loan terms and conditions as well before you make a decision.
2. Check your eligibility for the loan
Before you apply for a loan, be sure to check that you are eligible for the loan. You don’t want to go through the hassle of applying for a loan only to find that you are ineligible for the loan when your application is rejected. Be ready with your current credit score, income, as well as employment pass as proof of your eligibility for the loan. The different eligibility criteria for taking up personal loans can easily be found online on various financial institutions’ websites.
3. Complete the application process
The application process for a personal loan in Singapore differs across authorised financial institutions and licensed private money lenders. The following are basic documents you will need to submit to your money lender during the initial application process:
- Passport or NRIC
- Payslip (for proof of income)
- Income tax statements from the past 15 months
- Other documents
4. Wait for approval
Authorised financial institutions like banks usually take more time to approve your loan application compared to private money lenders. While the former tend to take a minimum of 2 weeks to approve your loan application, the latter may be able to approve your loan application within a day or two.
5. Receive your loan
Now all that’s left is to sign on the dotted line! But in order to do this, you’ll have to head down to your money lender’s office. All licensed money lenders in Singapore will carry out this process within their offices, so do be wary about online transactions. After you’ve signed, you will get the loan sum passed to you, and there you have it!