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Collateral loans: what counts as collateral?

Find out the main types of assets that can be used as collateral for personal loans, car loans and business loans.

With collateral, you might be able to get more favourable rates or may qualify for more loans. But before taking up this type of secured loan, you’ll need to understand that you risk losing the asset if you can’t pay back your loan. Let’s take a look.

What is collateral?

Collateral is an asset, such as a home or car, that a borrower offers to a lender as security against a loan. From a lender’s point of view, collateral acts as protection for their money. That’s because the collateral will become the property of the lender if a borrower can’t repay their loan.

If you’re struggling to find a loan with reasonable terms, securing one with collateral could be an option to help you find a lower Effective Interest Rate (EIR) or larger borrowing amount.

Common types of collateral

Personal loan
  • Personal real estate
  • Home equity
  • Personal vehicles
  • Paychecks
  • Cash or savings accounts
  • Investment accounts
  • Paper investments
  • Such valuables as fine art, jewellery or collectables
Business loan
  • Business or personal real estate
  • Home equity
  • Business property like machinery or specialised equipment
  • Business or personal vehicle
  • Farm assets and products
  • Accounts receivable
  • Insurance policies
  • Investment accounts
  • Business savings accounts
Auto loan
  • The vehicle you’re purchasing
  • Personal vehicles you already own
  • Home equity
  • Investment accounts
  • Paper investments
  • Cash or savings accounts

How do collateral loans in Singapore work?

Collateral loans, also known as secured loans, work by using something the borrower owns to back their promise to repay the lender. Typically, how much you can borrow depends on the value of the collateral. It often involves more paperwork than an unsecured term loan, since you might need to get your collateral appraised by an expert.

How much is my collateral worth?

How much your collateral is worth depends on what type of collateral you have. Finding the value of your collateral can be as straightforward as checking the balance of a bank account or as complicated as having your family heirlooms appraised by an expert.

Before you get your collateral appraised, ask your lender what procedures borrowers typically follow for that type of collateral. They might have some suggestions or requirements for who and how you determine your collateral’s value.

Which lenders offer secured loans in Singapore?

Personal loan lenders

ProviderSecured loansUnsecured loans
HSBCNoYes
Go to HSBC's website
Standard CharteredNoYes
Go to Standard Chartered's website
CitibankNoYes
POSBNoYes
DBSNoYes

Business financing lenders

ProviderSecured loansUnsecured loans
UOBNoYesRead review
AspireNoYesRead review
Kapital BoostYesNoRead review
OCBCNoYesRead review
MoolahSenseYesYesRead review
CoAssetsYesNoRead review
Funding SocietiesYesNoRead review
MinterestYesNoRead review
ValidusNoYesRead review
DBSNoYesRead review

When should I consider a collateral loan in Singapore?

You might want to consider backing your loan with collateral in the following situations:

  • You don’t have good credit. This typically means a CC risk grade and below.
  • You already have a lot of debt. You’ll have trouble finding any personal loan with a high debt-to-income ratio (DTI). But even if it’s just under that number, you might not be able to qualify for unsecured financing.
  • You own a valuable asset (or assets). Your collateral is key to a secured loan. Owning a home, a car — without any debt — makes you eligible for larger loan amounts.
  • You’re a sole proprietor. If your business is a one-person show, you might have trouble proving that you have a steady income to a lender.

Why do some loans require collateral?

It reduces the risk to the lender. Lenders specialising in business loans typically want collateral of some kind to minimise their risk of taking you on as a borrower.

Business loan collateral

If your small business is new or hasn’t yet found its footing, you may not have the revenue to assure a lender that you’re able to keep up with potential payments. Promising an asset or property like a bank account that’s worth the cost of the loan cuts that risk down. Read our guide to SME microloans if your small company is looking to access funding to pay for any type of business finance needs.

Loans backed by a purchase

The same principle applies to complex loans like those for cars, homes or even large personal purchases. All such loans can require collateral to ensure some form of repayment. Sometimes the collateral is the car, home or item you’re buying with the loan.

Pros and cons of collateral loans in Singapore

Pros
  • Increases the chance of approval. Even if you don’t have a perfect credit score, you have something that is valuable enough to pay back the amount of the loan if you find yourself unable to.
  • Lower interest rates. When you have an excellent credit score, you’ll often see premium rates from lenders. While you may not have the best score, providing security could get you a better interest rate as a result of the lowered risk to the lender. Compare loans with competitive rates of interest now.
  • More wiggle room. With increased chances of approval, lower interest rates and longer terms, you can often get terms that fit your budget. Cutting down the length of the loan might give you a lower overall cost, while extending it can afford you smaller monthly payments.
Cons
  • Repossession. Defaulting on a collateral loan means losing whatever that collateral is. A necklace from your great grandmother, your car or even your home can be taken if you promised them to the lender.
  • Overspending. Security generally affords you a little more leeway. This could be dangerous, though. Taking out more money than you need can mean additional interest payments.
  • Longer term. A longer repayment period can sound like a great advantage if you want to lower your monthly payments. However, it also means paying more interest over the life of the loan. A higher overall cost to your loan may not be worth the lower monthly cost.

How to get a personal loan without collateral

Not sure you want to put your house, car or grandmother’s silver on the line? Unsecured personal loans are actually more common than secured loans. The application process is nearly the same, except you don’t need to take the extra steps involved with appraising your collateral or providing proof of ownership.

You can typically get an unsecured personal loan with competitive rates if you have:

  • Good or excellent credit score
  • Steady income from a full-time job
  • A low DTI (debt-to-income ratio).

Find an unsecured personal loan

What is LTV?

The loan-to-value ratio (LTV) is the amount you’re eligible to borrow divided by the value of your collateral, typically expressed as a percentage. LTVs typically range from 50% to 90%, though it’s possible to find LTVs above 100% on loans for a specific purchase — such as a car loan.

How does this work? Say you wanted to take out a loan backed by a $100,000 savings account with an LTV of 70%. In this case, you’d be eligible to borrow up to S$70,000.

A deeper dive into how secured loans work

Risky collateral comes with lower LTVs

If you have collateral with value that might change over time — like an investment account or a used car — you’ll likely find a lower LTV.

For example, if you’re using a share trading account as your collateral, in order to factor in the volatility of the investment, a lender might only offer you 50% of the value of the shares, just in case they lose value during the term of your loan.

When it comes to borrowing against your house, lenders generally let you borrow 80% of its value. To calculate your maximum borrowing amount, subtract your current loan balance from your property value and then multiply this figure by 80%.

With auto title loans, you’re usually offered 25% to 50% of the value of the car.

Bottom line

There are options aplenty when it comes to taking out a personal loan with or without securing it. When looking into a secured loan, consider your ability to repay the loan very seriously before taking one out. Defaulting on a secured loan means more than just damaging your credit score: you could lose the asset you put up for security.

You can learn more about how personal loans work by checking out our guides to personal loans.

Frequently asked questions

If I have a poor credit score, am I still eligible for a secured loan?

You might be. The requirements vary by lender, but you may be able to get a secured loan with less-than-perfect credit if your asset matches the lender’s criteria and you can prove your ability to repay the loan. Otherwise, you can consider bad credit personal loans.

What can I use a secured loan for?

In the case of personal loans, you can usually use the loan for any legitimate purpose. Car loans are typically restricted to cars or other recreational vehicles. Business loans are generally for business purposes only.

Could my credit history be affected by a collateral loan?

Just like other loans in Singapore, your lender will report your payment history to the Credit Bureau Singapore (CBS) and the DP Credit Bureau (DPCB). Late repayments could penalise your credit history, and having your collateral confiscated could be even worse.

What will I need to apply for a loan?

Different lenders require different information and documentation. Generally, you’ll need to provide your personal contact information, NRIC, date of birth, bank account information and employment and income information. For a business loan, you’ll also need to supply relevant information about your business.

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