Everything You Need to Know About Unsecured Personal Loan
You can’t deny that no matter how much you try to avoid it, sometimes, borrowing money is the quickest and most convenient fix to fill your financial gaps. That said, choosing the right type of loan is crucial.
If you’re wondering what is an unsecured personal loan, you’ve come to the right place. Unlike secured loans, unsecured loans allow you to borrow money easily, without the hassle of putting up any assets. But that’s just the surface. If you are curious about the intricacies of unsecured loans in Singapore, this guide will help you understand it more.
Here at OMY Singapore, you will discover the following:
What Is An Unsecured Personal Loan In Singapore?
An unsecured personal loan is a type of loan that does not require any collateral to be put up by the borrower. When it comes to this loan, the bank or financial institution is taking a higher risk since they do not have any security in the form of property or assets to fall back on in case the borrower defaults on the loan.
As a result, unsecured personal loans typically have higher interest rates compared to secured loans. This is because the lender is compensating for the increased risk.
Who Can Apply for an Unsecured Personal Loan in Singapore
Not everyone is eligible for an unsecured personal loan in Singapore. To further know what is an unsecured personal loan, keep on reading to see who can apply for it.
Good credit score
Most banks and financial institutions look at the credit score when considering an applicant for an unsecured personal loan. This is because a good credit score indicates that the borrower is responsible when it comes to managing their money and debt. A high credit score also means that the borrower is less likely to default on their loan payments, making them a lower risk for the lender.
Having a stable income is also crucial when it comes to applying for an unsecured personal loan. Banks want to ensure that the borrower has a consistent source of income that can cover the loan repayments. This is why borrowers are often required to provide proof of income, such as payslips.
People who may not have assets
While it’s completely normal for people with assets to apply for this type of loan, unsecured personal loans are particularly suitable for those who do not have any assets to put up as collateral. This could include students, young professionals, or individuals who are just starting to build their financial portfolios.
Keep in mind that because of the risk taken on by loan providers, only Singaporean citizens, Permanent Residents, and Foreigners with a valid work pass are eligible to apply for an unsecured personal loan in Singapore. These individuals must also meet the age requirements of the financial institution of their choice.
Advantages Of Unsecured Personal Loans
Now that you know what is an unsecured personal loan, it’s time to look at its key benefits.
No Collateral Needed
Unsecured personal loans don’t require you to pledge any assets as collateral. This means your car or home is safe and you can borrow money without risking the loss of your valuable possessions.
Nowadays, unsecured loans have become more accessible to a wider range of individuals. As long as you meet the loan provider’s criteria, you can apply for one.
Quick Approval and Disbursement
Dealing with emergencies? This type of loan is a great option. Secured loans typically involve appraisals of collateral which can take time. On the other hand, funds for unsecured loans are disbursed immediately once approved.
Just like any personal loan, unsecured loans give you flexibility when it comes to how you use the borrowed funds. Whether it’s for unexpected medical expenses, home renovations, your dream vacation, the wedding of your dreams, or consolidating debts, you have the freedom to spend the money where you need it most.
Builds Credit History
Responsible repayment of unsecured personal loans can positively impact your credit history. This can be extremely beneficial for your future, such as when you plan on applying for bigger loans such as home loans because it proves your creditworthiness.
With fixed interest rates and set repayment terms, unsecured personal loans offer predictability. This helps you plan your budget effectively since you know the exact amount you need to repay each month.
Disadvantages Of Unsecured Personal Loans
While unsecured personal loans offer tons of advantages, borrowers must also be aware of their potential drawbacks.
Higher Interest Rates
Unsecured personal loans usually come with higher interest rates compared to secured loans. Since there is no collateral involved, loan providers may perceive these loans as riskier, therefore leading to increased interest.
Credit Score Dependency
As stated above, credit score plays a vital role in the approval of any unsecured personal loan. If you have a lower credit score, you may face challenges in securing a loan. If approved, you may end up dealing with less favourable terms.
Limited Loan Amounts
Most unsecured loans have lower borrowing limits compared to secured loans. If you need a huge amount of money, the options for unsecured loans may be limited.
Stricter Eligibility Criteria
Expect banks and financial institutions to impose stricter eligibility criteria for unsecured loans, especially if you have not built your credit history.
Shorter Repayment Terms
It’s normal for some unsecured personal loans to have shorter repayment periods. While this can be advantageous in terms of faster debt clearance, it may also result in higher monthly payments. This can potentially impact your budget.
Risk of Penalties for Late Payments
Missing payments or defaulting on an unsecured loan can have more immediate consequences. Your credit score may plummet and you’ll also end up paying more in penalties.
Not Ideal for Large Purchases
If you’re planning a significant investment, such as buying a house or getting a car, unsecured loans may not give you the necessary funds for it since you’ll end up paying more in interest.
Various Unsecured Personal Loans You Can Apply For
Here are the different types of unsecured personal loans that you can apply for, depending on your needs and financial situation.
Personal instalment loan
A personal instalment loan allows borrowers to receive a lump sum of money upfront, which is then repaid in instalments over a set period of time. The interest rate on a personal instalment loan is fixed, which means that the amount due each month will remain the same throughout the loan term.
This type of unsecured personal loan is a line of credit that allows borrowers to access funds up to a set credit limit. Borrowers can use and repay the funds as needed, and interest is only charged on the amount borrowed. Revolving loans are useful for ongoing expenses or unpredictable expenses.
A credit card instalment plan is a form of unsecured personal loan that allows you to convert your credit card purchases into instalment payments. This type of loan can be useful for those who want to make big-ticket purchases without having to pay upfront.
This type of unsecured personal loan is ideal for consolidating credit card debts and reducing interest payments.
Line of credit
As its name suggests, line of credit gives you a predetermined credit limit that you can access whenever you need it. You only have to pay interest on the amount you borrow. It involves transferring the outstanding balance of one or more credit cards to another credit card with a lower interest rate.
Debt consolidation plan
If you have multiple loans or debts, a debt consolidation loan can help you combine them into one monthly payment. This can make it easier to manage your debts and potentially save you money on interest.
A Word From OMY
Now that you understand what is an unsecured personal loan, you can finally start exploring your options and see which type of loan suits your needs best. With responsible borrowing and timely repayments, unsecured personal loans can be a great tool to help you achieve your financial goals and improve your credit history.
Keep in mind that because this loan doesn’t require you to pledge any asset, applying for it on your own can be tougher – but we’re here to help. At OMY, we are committed to finding the best loan option for your needs. Get a tailored loan offer here.