You want to go on a vacation with your partner this summer. Or maybe you want to purchase a new electronics item that costs a fortune. Or you are planning a big fat wedding. But you are not sure you will manage the additional finances required for doing so.
Sure, you can always spend your savings or even prematurely withdraw your fixed deposit to get the required money. However, that is not a good solution as you will end up paying a lot of fees as penalty. Or you may not have enough money left for a rainy day. In such a situation, the best alternative will be to apply for a personal loan and get the required money in no time.
New to personal loans? Check out our guide here.
How are personal loans useful?
The fact is that personal loans will not only help you to fulfil your whims and caprices, they can also help you to meet your financial responsibilities. You are probably an individual who is very careful about their finances. You plan our expenses rigorously and make sure that you do not end up spending more than you are supposed to.
However, it is not always possible for everyone to live within their means. At times you might be faced with uncertain financial conditions that will make you exceed your budget. To cope with such financial conditions, you can opt for a personal loan as it can offer you the required cash in no time and you can easily deal with your financial responsibilities.
Now that you have understood how personal loans can be beneficial, you probably want to know more about them. Well, don’t worry! We are here to help.
Secured vs. unsecured loans
Loans are either secured or unsecured. A loan is considered as secured when the borrower provides an asset as a collateral/security for the loan. For example, you can pledge your house as a collateral in order to obtain a loan from any bank or financial institution. In this scenario, the loan will be considered as secured.
On the other hand, when the lender offers the loan to you based on your credit history, annual income, etc. the loan will be considered as unsecured. You’re not pledging any asset to the bank in this scenario.
In most cases, home loans/mortgages, car loans, construction loans, etc. are considered as secured as the borrower pledges an asset to get the loan. However, personal loans and education loans are mostly considered as unsecured as the borrower does not need to provide any collateral for obtaining these loans.
You could also get a secured overdraft, which is a type of personal loan that is secured. Here, the security you provide may vary from fixed deposits to unit trusts to the guarantee of your income for a few months.
Generally, secured loans come with lower interest rates than unsecured loans, because – yes, you guessed it right – of the collateral involved. When an asset is pledged, the bank has a higher chance of recovering the money if you end up defaulting on the loan or miss several payments. When there is no asset involved, the bank’s only way of ensuring a recovery of the loan is to charge you higher interest rates.
Impact of credit score on personal loans
When you apply for a personal loan, the bank will analyse your credit history, monthly income, and other factors to determine if they should approve your loan application. These factors also play a part in determining the loan amount and interest rate, if the application is approved.
Your credit eligibility will depend on your credit score. So it is important that you improve your credit score. There are numerous ways through which you can improve your credit score and one of the easiest and most effective ways is to make your payments on time.
You can consolidate your debts and create a payment schedule with the lender so that the total debts can be paid in full within a short period of time and in the process, you will be able to immensely improve your credit eligibility.
How to apply for a personal loan
Do not be too concerned about the process of applying for a personal loan as it is quite simple. These days, most banks and financial institutions accept online applications for personal loans. You will only need to access their website and then click on the button that says ‘Apply Now’.
After that, you will only need to follow the given procedure, fill up the form and submit it. Apart from submitting the application form, you will also need to submit a few documents such as bank statements, ID proof, address proof, salary slips, IT Notice of Assessment, CPF statement, etc. After the documents are submitted, the loan application will be processed within a few working days. If it is approved, the loan amount will be credited to your bank account in no time.
Before you apply for a personal loan, read about what the banks have to offer so that you can make an informed decision. On BankBazaar.sg, you can read about all the banks and financial institutions that offer personal loans in Singapore. You can compare the features, benefits, tenure, interest rates etc. offered by different lenders and then opt for a loan that is best suited to your needs. We hope you would be able to make the right financial choice!