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Get access to much-needed funds and enjoy more flexibility with an unsecured loan.
With unsecured loans, you don’t need to offer collateral to be approved. But since these loans not backed by any asset, the lender will not have any collateral to repossess in the event that the borrower defaults on repayment.
Before taking up an unsecured loan, here’s everything you need to know, including how to apply with ease.
Compare unsecured loans
Unsecured loans 101
An unsecured loan is a loan that allows you to borrow funds without using an asset, such as a car or home, as collateral. This general-purpose loan gives you complete flexibility and means that you can use the loan to cover a car repair, renovation or even to meet some of the cost of your wedding.
Characteristics of unsecured loans
Unlike secured loans that are tied to their collateral, such as car loans and education loans, the funds from an unsecured loan may be used for a range of purposes, such as daily purchases, debt consolidation, paying for a wedding or even a vacation.
Based on creditworthiness
Although most lenders offer amounts up to 2 or 4 times your monthly salary, the loan sum is ultimately based on their assessment of your creditworthiness from factors such as your monthly income, credit history and other loan commitments.
Either term or revolving loans
With a term loan, you’ll need to repay the loan by instalments over the tenure. However, revolving loans allow you to draw funds up to a predetermined credit limit at any time and will remain available as long as amount owed is repaid.
What is the effective interest rate on these unsecured loans?
An effective interest rate (EIR) helps you understand the true cost of a loan. Displayed as a percentage, this rate includes both the interest rate and various fees and charges that come with the loan. That’s why it is generally higher than the displayed interest rate.
How unsecured loans work
Unsecured loans generally let you borrow between S$1,000 to S$200,000 without needing to use an asset, like a car or property, as security. You can use the loan for any worthwhile purpose and repay the loan plus interest over an agreed term. Terms generally vary from one to seven years.
While you can generally use the funds however you want, you may be asked to list why you’re applying for an unsecured loan. This will form part of the lender’s decision.
Unsecured loans will generally have higher rates than secured loans. You may also need to pay establishment fees or ongoing fees, so be sure to check these before you apply. Some unsecured loans will also come with additional features, such as the ability to repay your loan early without penalty.
Why is the interest rate higher than a secured loan?
Interest rates on unsecured loans are higher for borrowers as the lender is taking on a higher risk. If your loan is secured, the lender can seize the asset you’ve used for collateral to recoup the outstanding amount, but this isn’t possible with an unsecured loan. To safeguard themselves, lenders charge more interest so they have more to fall back on should you default.
Types of unsecured loans
Financial institutions and moneylenders offer three main types of unsecured loan, which are personal loan, line of credit and balance transfer. Here are the features for these loan types and how they differ:
|A Personal Loan||Lines of Credit||Balance Transfer|
|Features||A general purpose loan that lets you borrow a fixed amount of money over a fixed term, typically at a fixed rate of interest.||A general purpose credit line that can be accessed at any time and will remain open as long as you don’t exceed the preset borrowing limit.||A balance transfer facility allows the consolidation of outstanding credit card debts from a different bank, into a single credit card at lower interest rates for an introductory period.|
|Loan amount||Typically 4 to 10 times your monthly salary. Borrowing limit for unsecured loan capped at 12 times your monthly salary due to MAS regulations.||Typically 2 to 4 times your monthly salary OR; 10 times if you earn more than S$120,000 p.a.||Depends on borrower’s debt and preference.|
|Interest rates||From 3.7% to 5.43% p.a.||From 18.5% to 19.8% p.a.||0% interest for a promotional period then reverting to the prevailing interest rate (19% p.a. to 26% p.a)|
|Fees||Processing fee from $0 to $200.||Generally from $80 to $100 p.a, with 1-2 years waiver.||Based on the credit card’s annual fee.|
What are the benefits of an unsecured loan?
Secured loans often have more restrictions on how you use the loan funds. For example, most car loans are secured by vehicle purchase. In other words, they have to be used to buy a car.
Unsecured loans, on the other hand, can usually be used for anyone or multiple expenses and purchases. Use the loan amount however you need to, such as purchasing furniture or consolidating debt (or both).
Lots of options
This is a standard type of loan so you’ll find most banks and lenders offer their own version of an unsecured loan. This gives you a wide range of options to compare to find the right unsecured loan for you.
While interest rates are generally higher with unsecured loans compared to secured loans, you can still find loans that offer low rates. Peer-to-peer lenders, for example, offer rates on unsecured loans that are on par with most secured loans.
In fact, unsecured loan interest rates are typically lower than a cash advance from your credit card.
When should you take out an unsecured loan?
Since an unsecured loan may be used for almost any purposes, you might find it tempting to borrow the money for non-essential purchases, such as a holiday or retail therapy. However, you should always consider if these are sensible reasons to rack up debt for.
Unsecured loans are usually the best go-to option in times of financial emergency and here are some examples of genuine circumstances when they can come in handy:
- Medical emergency. If you or your loved one require emergency medical care and you need to raise a significant sum to cover the medical bills urgently.
- Family emergency. Unexpected death could mean settling hefty funeral expenses with little or short notice.
- Vehicle repair. If your car, motorcycle or truck has broken down and you rely on it to make a living or to get to work, an unsecured loan can help cover the costs of repair.
- Educational expenses. If your laptop broke down and you need a new one for your course work, or required to buy expensive textbooks or art materials.
How do you find the best unsecured loan?
Comparing your unsecured loan options is an important part of finding the right loan. Here are some things to keep in mind when doing so:
- Interest rate. Check whether the interest rate is competitive.
- Minimum and maximum loan amounts. All lenders will set a minimum that you can borrow and the majority will have a maximum – these usually vary between S$1,000 and S$200,000. As you may not be eligible for either, it’s important to check that the amount you need falls between the two.
- Fees and charges. You can be charged upfront and ongoing fees with unsecured loans, so check what these are before you apply. You can look at the effective interest rate (EIR) which includes these fees for the total cost of the loan.
- Additional features. Your loan may come with additional features that you might find convenient, such as online account management, a redraw facility to access additional repayments or discounts on additional products offered by the lender.
What to weigh up: The pros and cons of unsecured loans
- No asset needed for security. When getting an unsecured loan, there’s no need to supply an asset as security. If you’re purchasing an asset with your funds, you won’t have to risk it, and you also won’t need to risk an asset you already own.
- Flexible loan purpose. You can use the funds however you like. Once you’re approved, the funds will be transferred to you and you can use them to consolidate debt, purchase what you need to or to invest.
- Easy application process. Applying for one of these loans is generally straightforward. The application can typically take place online if you can provide the appropriate documentation required. After the application, you can usually get a response in 60 seconds.
- Can have higher fees and interest. As there is no collateral with unsecured loans, there are higher fees enforced by the lender to compensate for the lack of security. This may come in the form of an establishment fee. Interest rates are usually much higher than secured loans as well.
- Penalties for missed payments. Again, as there is no security asset on an unsecured loan, the lender can charge you exorbitant fees for late payments or even take legal action against you if you default on the loan.
Is there anything to avoid with unsecured loans?
- Lying about what you need the funds for. Always be upfront with your lender about why you’re applying for the loan, whether it be for business purposes or to consolidate debts.
- Getting into too much debt. If you are taking out an unsecured loan to consolidate existing debts, you should be wary of getting yourself into financial trouble by increasing your debt. Make sure you’ll be paying less with this new loan than you are currently forking out.
- Check if the lender providing your credit is licensed. Always make sure you are getting an unsecured loan from is a licensed lender. All providers must be licensed with the Ministry of Law; you can search through the Registry of Licensed Moneylenders.
- Fees and charges. Whenever possible, always do your best to avoid excessive fees and charges. The best way to do this is to make sure you do your research, ask questions and compare.
How to apply for an unsecured loan
If you think that an unsecured loan is for you, all you need to do is use the comparison table above to compare your unsecured loan options. After browsing and finding a suitable loan, click Go to site to be directed to the lender’s website to start your application. To get an unsecured loan approved, you’ll need to meet a range of criteria set by the lenders, including:
- You must be at least 21 years old.
- You must also have a good credit score and be able to provide proof that you can pay off the loan.
- You may be asked to provide copies of your payslips, bank account statements and other credit contracts.
- You’ll also need to provide your ID.
Questions you still might have
Can I get an unsecured loan for business purposes?
Some lenders may allow you to use the funds from an unsecured loan for business purposes, but others will not. You will need to confirm this with the lender before you apply.
How can I get a low rate unsecured loan?
While unsecured loans do generally come with higher rates than secured loans, you can still find a competitive low rate option. Compare your options using the table above and find a loan that meets your budget.
How long do I have to repay an unsecured loan?
Fixed-rate unsecured loans tend to offer terms of between one and five years.
What’s the difference between a term loan and a revolving loan?
A term loan (or a personal loan) is one that has a fixed number of payments over a set time period. Meanwhile, a revolving loan (such as a line of credit) is when a bank offers to lend you money up to a certain limit – and typically, there’s no fixed period of time in which you’ll have to clear the loan in full.
I applied for an unsecured loan but the rate I received was different to the advertised rate. Why?
There are two reasons this might have happened: A lender may operate on a tiered-rate system where your rate is determined by the information in your application, or the lender approved you but found you to be a high-risk borrower, so applied a higher rate to your account.
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