3 types of unsecured loans, in a nutshell

NAV TL;DR

If you don’t have time to read through the whole article, you can check out our short version below:

Understand unsecured loans:

Unsecured loans are not backed by any asset and hence, tend to have higher interest rates compared to secured loans. 

Examples of unsecured loans are personal loans, lines of credit, and balance transfers.

The loan amount you can get depends on your creditworthiness. 

Before taking an unsecured loan, consider how long you will need to repay the loan in full and the interest charges.

Unsecured loans are so named because they are not backed by any asset. This means the lender does not have any collateral it can repossess in the event the borrower is unable to repay the debt. For this reason, unsecured loans tend to have higher interest rates than secured loans, such as a home or car loan, where the property or vehicle is collateral the lender can repossess in case of default.

Multi-purpose:

They can be used for a range of purposes, from buying consumer goods such as furniture and electronics, to funding your wedding or honeymoon, to consolidating your existing borrowings with different banks and financial institutions under a single credit card.

Based on your creditworthiness:

Whether and how much you can borrow depends on the banks' assessment of your creditworthiness - or your ability to repay - which is, in turn, influenced by factors such as your monthly salary and other loan commitments. The bank will check your credit rating before determining how much to lend you.

Can be term or revolving loans:

These determine the duration of your repayment.



TERM LOAN

REVOLVING LOAN

  • Requires a set number of payments, made over an agreed period.
  • Examples include personal loans.
  • There are usually minimum monthly payments, but no fixed period to repay the loan. You can repay as quickly or as slowly as you like.

    Note, however, that the longer you take to repay, the more interest charges you'll accumulate.
  • The bank offers you funds up to a certain credit limit, which is drawn down when money is borrowed and returned when money is repaid.
  • Examples include credit cards and lines of credit.

Some types of debt, such as line of credit, may be more suitable for the short term because of their high interest rates—so you are encouraged to pay it off quickly, to prevent interest charges from piling up.

We highlight 3 types of unsecured loans: personal loans, lines of credit and balance transfers.

WHAT IS IT?

A general purpose loan with regular payments spread over months or years.

LOAN TYPE

Term

REPAYMENT PERIOD

Generally varies from 1 to 5 years

LOAN AMOUNT

Typically up to 10 times of your monthly salary

INTEREST RATES*

From 3.88% per annum (p.a.)

OTHER FEES

Processing fee: Around 1%-4%


WHAT IS IT?

An arrangement between you and the bank, which sets an amount of funds you can choose to borrow (called your "credit limit")

LOAN TYPE

Revolving

REPAYMENT PERIOD

Not fixed as borrowing funds are repaid, you can borrow again, up to your credit limit. This is called "revolving credit"

LOAN AMOUNT

Typically up to 4 times of your monthly salary, or 10 times if your annual income is more than S$120,000

INTEREST RATES*

Around 20.5% p.a. or 0.06% per day, typically lower than credit card rates

OTHER FEES

N.A.


WHAT IS IT?

Allows you to consolidate debts from various accounts/ credit cards into a single credit card at lower interest rates

LOAN TYPE

Revolving

REPAYMENT PERIOD

Generally 6-12 months, subject to minimum monthly payments (like for credit cards) 

LOAN AMOUNT

Determined by the lender

INTEREST RATES*

From 5% p.a. after processing and other fees are included

OTHER FEES

Administration fee: Around 4%-7%

*Notes: Rates shown are advertised or nominal rates. For the true cost of borrowing, always refer to or request for the Effective Interest Rate (EIR) to compare between different loan types and offers. EIR is usually higher than the advertised rate because of the way interest is calculated and it considers processing and other fees in the borrowing cost.

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