Data published by the Monetary Authority of Singapore (MAS) indicates that personal loan borrowings (Consumer Loans – Professional and Private Individuals – Others) in Singapore during Jan 2016 touched S$37,054.3 million! It is apparent that personal loans are a highly popular financial product. So, in this issue we will turn our attention to the pros and cons of personal loans in Singapore.
Pros of Personal Loans
No collateral – Personal loans do not require any collateral. This is unlike mortgage or auto loans where your house or vehicle is pledged to the financial institution.
No restrictions on use – Personal loan amounts can be put to whatever use you deem fit. Whether you want to finance your dream vacation or buy that latest gadget or get a set a household appliances or use it for an emergency or whatever you want to, you are free to do so. Compare this with other loan products like home loans, car loans or education loans where the loan amount can be used only for the particular purpose for which it is borrowed.
Lower interest rate – Personal loans are available at far cheaper rates than cash advances on your credit card.
Documentation requirements – You also need to submit lesser number of documents for availing of a personal loan vis-à-vis home loans or car loans.
Quicker disbursal – Lesser documents result in lesser processing time; personal loans can be disbursed faster than home loans or other collateralized loan products.
Building a good credit score – Take a personal loan, pay all your installments on time and wrap up the loan in good time and see the positive impact this leaves on your credit scores. Complete a personal loan without any defaults and apply to the Credit Bureau (Singapore) Pte Ltd or the DP Credit Bureau Pte Ltd, the only two credit bureaus gazetted by MAS and allowed to collect credit information on individuals from financial institutions, for your credit report and you will see your credit scores have only improved for the better!
Cons of Personal Loans
The unsecured nature of personal loans has a substantial impact on various lending criteria:
Eligibility criteria are stricter than for certain types of secured loans. This could be reflected in higher income requirements, age restrictions (older persons may not find it easy to get a personal loan),
Credit scores – The unsecured nature of personal loans could also result in lenders requiring potential borrowers to have good credit standing before they release a loan.
Interest rates – Interest rates on personal loans are usually higher / much higher than rates on secured loans like home loans or auto loans.
Part payments – Many secured loan products allow borrowers to make part-payments towards their loan outstanding; this helps them reduce both the principal- and interest-related outgoings. Personal loan products do not allow such part payments.
Personal loans from moneylenders – It has become fairly common amongest those Singaporeans who find it difficult to get personal loans from mainstream banks / financial institutions to approach moneylenders. But, beware! Borrowing from an unlicensed moneylender at usurious terms could push you into a deeper financial quagmire. It is highly recommended that apply personal loan through reputed banks or financial institutions in Singapore.
If borrowing from a moneylender check the Ministry of Law’s Registry of Moneylenders and also their very informative “Guide to borrowing from moneylenders”.