What Do You Need To Apply For A Personal Loan In Singapore?
March 23, 2023
Everyone saves money from their monthly expenditure, thinking it will be enough when misfortune strikes. Not everything goes as planned, and soon you might find yourself in a cash crunch.
The immediate solution is to seek financial help from banks or licensed money lenders. Banks can be the safest financial source, but they take much time to process your loan. Often borrowers seek a money lender’s help in such circumstances.
They are flexible with regulations, and borrowers can receive the loan amount on the same day.
However, potential borrowers must consider various factors and loan types before applying for a personal loan.
What Is A Personal Loan And How Does It Work?
A personal loan is an unsecured credit scheme a borrower takes out to support their financial needs. The loan is unsecured – meaning you don’t need collateral.
In other words, if an individual fails to repay their debt installment, the debtor’s property won’t be at risk.
In Singapore, if a person borrows a considerable amount from the bank or the licensed money lender, they must pay it back along with the interest rate. Sometimes, the borrower has to pay additional yearly charges over the loan tenure.
Note: Personal installment loans have fixed rates of interest and payback periods. It implies the borrower needs to repay the entire principal amount plus interest within a few months or a year.
Types Of Personal Loans in Singapore
There are four types of personal loans available in Singapore. Before you think about what do you need to apply for a personal loan, understand the four types:
- Personal Installment Loan
It’s a common type of loan that offers you a lump sum upfront for medical emergencies, education purposes, and weddings.
- Credit Line
Also known as a revolving line of credit, this loan facility allows you to borrow money whenever needed. In this case, you might have to pay an annual fee of about $60 to $120.
- Debt Consolidation Plan
It’s a refinancing scheme enabling borrowers to consolidate all their unsecured credit plans under one financial institution. However, plans like education loans, renovation loans, and medical loans are excluded from this credit facility.
- Balance Transfer
It allows you to bring all your debts and outstanding credit balance under one platform. You can devote a specific budget to manage them.
What To Consider Before Applying For A Personal Loan?
When selecting a type of personal loan, a borrower should compare the financial scheme and its interest rates among various financial sources. Here are seven factors to consider before applying for a personal loan in Singapore:
1. Interest Rate
While you browse the personal loan scheme in banks or money lending agencies, you’ll come across Applied Rate (AR) and Effective Interest Rate (EIR). These two interest types differ from one another on the grounds of calculations.
In AR, the principal amount stays the same throughout the loan tenure. It doesn’t reduce the actual amount even after the loanee pays the installments on time.
EIR, on the contrary, reduces the principal amount every time the borrower pays back. The bank calculates the EIR based on the reduction of the principal amount throughout the loan duration.
2. Additional Bank Charges
Don’t limit your queries to interest rates when speaking to a bank agent. Ask them about the extra charges you might have to pay. These charges include:
- Yearly Fees
Some banks charge an annual fee throughout the tenure. That is to say, if your loan tenure is for six years, you need to pay yearly fees six times.
- Late Payment Fee
Banks can charge a late payment fee when the borrower pays less than the monthly installment or delays the payment. Therefore, ask your agent how strict the money lender is regarding repayment policies.
- Tenure Change Fee
Consider a situation where the borrower finds the repayment amount more than they can afford per month. They can extend the loan tenure for an additional amount. Remember, not all banks or money lending agencies are flexible about changing the loan tenure.
3. Early Repayment Fee
The bank charges an early repayment penalty when a borrower repays their installment earlier than the specified time. That’s because when you repay the loan early, the bank loses a part of its anticipated profit, and they try to incur a portion of the lost profit by charging an extra fee.
Typically, the bank calculates a certain percentage of your outstanding loan as the early repayment fee.
4. Credit Score
Sometimes borrowers apply for a personal loan from the same bank that issued their credit card. In such instances, the bank will reduce your credit limit. It will stop you from borrowing more and keep the amount within a manageable limit. Once you clear the loan, the bank will restore your credit limit.
5. Period Of Loan Approval
The period of loan approval differs from lender to lender. Thus, you should ask the financial agent about it before applying. If you’re searching for a licensed money lender, we suggest GS Credit for their same-day and hassle-free loan approval services.
6. Type Of Lender
It’s always advisable that a borrower should choose a reliable money lender who’s enlisted as a licensed money lender under the Ministry of Law. That way, every transaction stays within records, and the borrower doesn’t have to face unpleasant circumstances. For a safe bet, approach the bank for a personal loan.
Stay away from agencies that agree to lend you money without checking your credit history. Such suspicious organizations can harass you for not repaying the amount on time.
7. Financial Capability
Before choosing a particular personal loan, ask yourself if you can afford the monthly installment. Understand if you can reduce your monthly expenses and bear the installment without difficulty.
Draw up a budget and study your expenditures per month. Consider these factors before you agree to a personal loan scheme.
How Much Can You Borrow?
The maximum limit of personal loans a borrower can take out depends on their annual income. In generic terms, banks lend a borrower four times their monthly salary if they earn up to $30,000 per year.
At the same time, an individual earning less than $30,000 per year will be allowed to borrow only twice their monthly income, and that too at a higher interest. Moreover, if you’re a foreigner living in Singapore, your annual income should be within the range of $40,000 to $60,000.
Note: The higher the monthly income, the more a person can borrow from a bank. The financial institutes are ready to lend you eight to ten times your monthly salary if you are in the higher-income bracket.
What Documents Do You Need To Apply For A Loan?
The documents you need to apply for a loan depend on the financial source of your choice. They differ from banks to money lending agencies.
If you’re wondering what do you need to apply for a personal loan, here’s a list of documents you can present before banks or licensed money lenders:
* Proof Of Income
The bank or the money lending agency asks for potential documents that support your income status. They want to check if you qualify for a particular loan amount.
Documents that you may need as proof of income are:
- Statement of Central Provident Fund
- Recent computerized payslip
- Latest income tax notice
- Bank statement showing the amount of salary credited
* ID Copy
For any loan-related business, a debtor has to present a copy of identification. These may include their NRIC or Employment pass card. Such documents highlight your eligibility.
* Employment Information
The licensed money lender will ask for your employment information, and you can produce an Employment pass card or CPG statement. In the case of an employment loan, you might have to submit your employment contract, job offer letter, and salary details.
Identification Evidence Is Required To Apply For a Personal Loan
In Singapore, you need a series of supportive documents to prove your qualification. These may differ between banks and money lending agencies. However, you must have a decent credit score, a stable transaction history, and keep salary evidence ready.
In many cases, these documents can help you reduce interest rates at moneylending agencies. For a flexible loan policy and efficient loan processing, apply for a loan at GS Credit.