Secured Loan Singapore 101
Imagine you suddenly face a financial emergency that requires immediate attention. It may be a medical emergency, a home repair, or even a business opportunity.
Whatever it is, it requires a significant amount of money that you don’t have on hand. But what if you don’t have the best credit score to apply for an unsecured loan? In this situation, a secured loan in Singapore might be the answer to your problems.
If you want to know more about secured loans in Singapore, then you’ve come to the right place.
Here at OMY Singapore, you will discover the following:
Unsecured Vs. Secured Loan Singapore: What’s The Difference?
To better understand loans in Singapore, you must first know the difference between secured and unsecured loans.
Unsecured loans are not backed by collateral, which means that the bank relies solely on the borrower’s creditworthiness to determine if they will be approved for the loan. To be eligible for an unsecured loan, a borrower must have a good credit score and income to prove their ability to repay the loan.
On the other hand, a secured loan Singapore requires collateral, such as a car or a property, which the loan provider can seize if the borrower fails to repay the loan. This collateral can be anything from a new or used vehicle, equity in your home, any high-value asset, or term deposits.
The bank will use the collateral as a guarantee that they will be able to recoup their losses in case the borrower defaults on the loan.
Advantages Of Secured Loan In Singapore
Here are the advantages of secured loans in Singapore that you should be aware of.
Higher loan amount
When it comes to secured loans, banks are more willing to lend a higher amount of money because they have the collateral to fall back on if the borrower defaults on the loan. That said, you can borrow a larger sum of money than you would be able to with an unsecured loan. This is particularly helpful if you have a major expense that needs to be paid off.
Lower interest rates
It’s common for a secured loan Singapore to have a lower interest rate compared to unsecured loans since banks and financial institutions have the added security of the collateral which lowers the risk of the loan. Lower interest rates mean lower monthly payments so it will be easier for you to repay the loan without putting too much strain on your finances.
Great for those with low credit score
The collateral provides a safety net for the loan provider in case the borrower defaults on the loan. If you have a low credit score, a secured loan might be a good option for you to still get the financial assistance you need.
Flexible repayment options
Another advantage of a secured loan Singapore is it often comes with more flexible repayment options compared to unsecured loans. Borrowers can choose to pay back the loan over a longer period of time, which can help to reduce monthly payments.
Additionally, some banks may allow borrowers to make early repayments or even pay off the loan in full without any penalty fees. This can be a great advantage if you are expecting a windfall or an increase in income in the near future.
Versatile use of funds
Whether you need funds for a home renovation, a medical emergency, or to start a business, a secured loan Singapore can give you the flexibility to use the funds however you need to. As long as you have collateral to put up, the loan provider won’t restrict how you use the loan amount.
Improves credit score
For individuals who have a poor credit score, taking out a secured loan Singapore and making timely repayments can actually help to improve their credit score. Regular payments on a loan show that the borrower can be trusted to make payments on time, which can lead to an increase in their credit score over time.
More from OMY: How To Improve Your Credit Score In Singapore
Soon, this can open up more financial opportunities since a better credit score makes it easier to secure loans or credit cards with better terms and interest rates.
Disadvantages of Secured Loan Singapore
Now that we’ve looked at the advantages of a secured loan Singapore, let’s take a closer look at its disadvantages.
Risk of losing collateral
The biggest and most obvious disadvantage of a secured loan in Singapore is the risk of losing your collateral. If you default on the loan, the bank or financial institution has the right to seize the collateral to recoup their losses. So if you put up your house or car as collateral and are unable to repay the loan, you could lose your property or vehicle.
Higher stakes
Since you are putting up collateral, the stakes are higher with a secured loan. You must be absolutely certain that you can repay the loan on time, as failing to do so could result in losing your collateral.
More paperwork
A secured loan Singapore requires more paperwork than an unsecured loan because the loan provider needs to verify the ownership and value of the collateral being put up. This can be time-consuming and can delay the secured loan Singapore approval process. Since it takes more time to get approved, a secured loan might not be the best option if you need funds quickly.
It’s not for everyone
Secured loans are not always easy to obtain since they require collateral. If you do not have any valuable assets to put up, you may not be eligible for a secured loan.
What If You Can’t Pay Your Secured Loan Singapore?
By any chance, if you find yourself unable to repay your secured loan Singapore, take action before it’s too late.
The first step is to contact your bank or financial institution and explain your situation. They may be able to offer you some options or a repayment plan that will help you avoid defaulting on the loan and losing your collateral. Chances are, they are willing to work with you to find a solution that benefits both parties.
If you are unable to come to an agreement with your loan provider, seek the advice of a financial counsellor. These professionals can offer guidance on how to manage your debt and come up with a repayment plan that works for your financial situation.
If you do default on the loan, the bank or financial institution will have the right to seize your collateral and sell it. This can have serious consequences, particularly if the collateral is your home or car.
Ultimately, the best way to avoid defaulting on a secured loan in Singapore is to only take out a loan that you can afford to repay.
A Word From OMY
If you’re interested in applying for a secured loan Singapore, prioritise your ability to repay the loan and carefully consider the risks and benefits. Make sure that you have a solid plan in place to repay the loan on time and that you are comfortable with the amount of collateral you are putting up.
Remember that while a secured loan Singapore can offer you access to larger loan amounts and lower interest rates, it also comes with the risk of losing your asset.
If you’re ready to apply for a secured loan, OMY can help. Our loan matching algorithm carefully matches you with trusted loan providers who offer competitive rates and flexible repayment options. We understand that taking out a loan is a big decision, so we’re here to guide you every step of the way.
