Every Singaporean will have to take a loan at one point in their lives be it for a house, car, wedding or to start a new business. If you’re one of the few that can afford things without having to take on a loan, lucky you! Otherwise, chances are you’re a middle-class citizen trying to make it in life and have to take at least a housing loan to own a house.
There are many outlets to take a loan from in Singapore. Banks, HDB, your parents. Or if you’ve exhausted all means, the loan sharks. Well, let’s hope your situation will never be that dire.
Before you take a loan, you should educate yourself on everything about it such as penalties if you default on your loan and the benefits of choosing from another institution. To start you off, here are the pros and cons of some loans in Singapore.
Advantages of a personal loan
Personal loans are one of the most popular loans in Singapore. As there are no restrictions on use, they can be used to pay for anything you wish to. This can include situations for when you’d like to take an impromptu trip to London to surprise your loved one or to start a side project.
The good thing about taking a personal loan is that you’ll need to submit a lesser number of documents as compared to a home or car loan. This results in a faster processing time, with many banks promising cash in an hour or less. Due to the nature of personal loans, you also don’t need any collaterals which make it all convenient!
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Disadvantages of a personal loan
Despite all its pros, personal loans are not for everyone. With such convenience comes a price. The eligibility for it is expectedly higher which may mean only people with high incomes (typically $30,000 p.a.) and are young (under 60 y.o.) will be eligible. Why such strict requirements? It’s to ensure you won’t default on your payment.
As they’re not going to spend time collecting documents from you, they trust that if you belong to this age group, you’ll be capable of paying off the loans, and on time. This also means you need a good credit score. After all, why would they want to lend you money if you’re at risk of not paying back right?
Advantages of an education loan
Education loans are pretty common in Singapore. While a survey showed that Singaporean parents were willing to go broke to put their child through university, not everyone is lucky enough to have a parent like that.
The good thing is, as long as you’re a student, you’ll qualify for this type of loan and approval rates are very high. Interest rates are pretty low, so there should be no reason for you not to pursue your studies. After all, an education is one of the best investments you can make in your life.
Disadvantages of an education loan
Honestly, there aren’t many cons to this. Unless you fail terribly at school and drop out, this is a pretty good loan to take. Sure, you may have to pay it off slowly when you graduate. But think of the opportunities you’ll get with your education!
Of course, do think of the cost benefits before randomly jumping back into school. Don’t take a masters or specialist degree for the sake of doing so. Plan ahead and decide whether pursuing an additional qualification at this point of your life will aid you in your greater goals.
Advantages of a payday loan
Payday loans are very different from the other type of loans you’ll see on this list in the sense that you have to pay them back very quickly, typically a month or less. Payday loans are loans to tide you over until your next, well, payday. As such, you have to repay them as soon as you receive your next pay cheque. These are good for people who need an amount of cash urgently to tide them over such as the payment of bills or repairs. These loans typically disburse the cash to you pretty quick because you don’t need to go through stringent background checks. As long as you’re employed and have good reason to pay the amount back, you should get approval pretty quickly.
Disadvantages of a payday loan
High-interest rates. So you better pay off that loan on time. Otherwise, you may need to take another loan to pay off the first loan you missed. And if you do miss the deadline, say bye to your awesome credit score. Also, you’re supposed to pay off the loan as soon as you get your pay cheque, which means you cannot borrow large amounts. If you’re earning $3,000 and want to borrow $4,000, chances are your application will be rejected.
(Just to make it clear, I’m referring to the one offered by HDB and not any other housing loans)
Advantages of a HDB loan
If you’re using your CPF to pay for your HDB apartment, you will have to subscribe to a Home Protection Scheme (HPS).
The HPS is a mortgage-reducing insurance that protects members and their families against losing their HDB flat in the event of death, terminal illness or total permanent disability. HPS insures members up to age 65 or until the housing loans are paid up, whichever is earlier.
What this means is that in the event something happens to you and you’re no longer able to earn your bread and butter (touch wood!), the CPF board will absorb the outstanding housing loan. The last thing you want to worry about when you’re no longer able to bring in money is to lose the roof over your head too.
Should you miss your payments, HDB will likely be more lenient too as compared to a bank.
Disadvantages of a HDB loan
Higher interest rates compared to bank loans. As banks compete against the Housing Development Board, they will offer a slightly lower interest rate. While a 0.01% may not sound like much, it can come up to thousands of dollars over time. Not everyone will be eligible for a HDB loan as there are criteria. For example, at least one of the buyer (you or your spouse) must be a Singapore Citizen and your total household income must be below $10,000.
Bank (Housing) Loans
Advantages of housing bank loans
Since we were on the topic of HDB loans, thought I’d mention taking a housing loan from the bank. By taking housing loans with banks, you will be offered a lower interest rate, thus resulting in a cheaper mortgage overall. Good for those of you wanting to secure a mortgage with the best rates.
Disadvantages of housing bank loans
To qualify for most bank loans, you’ll need an annual income of at least $30,000. Also, as there are no schemes such as the HPS in place, should you default on your bank loan (e.g. breaking your limbs thus losing your job), the consequences are dire.
This isn’t a comprehensive review because the pros and cons will weigh differently for everyone based on their unique financial situation. You should always do thorough research before taking on any loans. A liability is no joke. If you have issues tracking your finances, try out Seedly. With Seedly, you can see all your finances on one screen.
This article first appeared in blog.seedly.sg