Quick Guide To Loans For All Working Adults

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Loan guide for working adults

At some point in life, you will need to get a loan. A loan is meant to help you finance a purchase so that you can enjoy it while you pay for it. It is almost unimaginable if you have to completely pay for your home before you can move in. Thus, a loan allows you to fund major expenditures that are currently not within your limits due to limited cash on hand. There are five types of loans that every working adult will encounter in a lifetime. Here’s a quick guide to all of them.

Contents:

1. Car loan

A car loan is a type of loan designed for the specific purpose of helping car buyers pay for their car purchase.

What loan options do you have?

If you are looking for a car loan, there are a few options you can choose from. You can either take an in-house financing package from the car dealer, a bank loan through the car dealer or directly getting a car loan from the bank.

How long can you take your loan for?

The maximum loan tenure that you can take a car loan for is seven years. In addition, the length of your loan tenure cannot be shorter than the registration date of your car. This is applicable if you are buying a second-hand car with less than seven years left on your certificate of entitlement (COE).

How much can you borrow on your loan?

There are a few factors that will determine how much you can borrow from your car dealer or the bank. These factors include the open market value (OMV) of your car, monthly income, credit score, current loan commitments and the tenure of your car loan. Based on the latest regulation, you can only loan up to 70% of your car’s purchase price. This means that you can expect to pay at least 30% of your car’s purchase price in cash.

Find out more about car loans below:

2. Home loan

A home loan is a type of loan designed for the specific purpose of helping homeowners pay for their home.

What loan options do you have?

If you are planning to take a home loan, there are two choices you can opt for. You can either get an HDB loan from HDB or take a bank loan for your home. An HDB loan is only applicable if you are buying an HDB, be it build-to-order (BTO) or resale flat. A bank home loan is applicable for both HDB and private properties.

How long can you take your loan for?

The tenure of a home loan is dependent on your age. The maximum loan tenure for HDB flats is 25 years or until you are age 65, whichever is shorter. For private properties, the maximum loan tenure is 30 years or until you are age 65, whichever is shorter. You can, however, choose to extend your loan past the cap or age 65. But if you do so, your loan amount will be reduced by the loan-to-value (LTV) ratio.

How much can you borrow on your loan?

The loan quantum that you can borrow is determined by your combined household income, current loan commitments and regulatory requirements.

HDB or the bank will first decide how much you can borrow based on your combined household income. After which, a cap based on regulatory requirements like mortgage servicing ratio (MSR), LTV and total debt servicing ratio (TDSR) will be imposed.

  • If you are getting an HDB and taking a loan from HDB, your maximum loan quantum is capped by the MSR and HDB’s LTV of 90%.
  • If you are getting an HDB with a bank loan, your maximum loan quantum is capped by the MSR and the LTV ratio of 75% for banks.
  • For private properties, your maximum loan quantum is capped by TSDR and LTV ratio of 80%.

The maximum home loan quantum that you can get will be decided based on the lower of your combined household income or the regulatory limit.

Find out more about home loans below:

3. Renovation loan

A renovation loan is a type of loan that helps you to pay for your home renovation costs. In a renovation loan, you do not receive the cash. Instead, the loan provider will pay your renovators on your behalf, be it the interior designers or the contractors.

What loan options do you have?

There are only 5 banks in Singapore that offer renovation loan packages. You have the choice of signing up a renovation loan with DBS, RHB, Maybank, CIMB or OCBC. There are also some credit companies that offer renovation loans.

If you are looking to save some money, you can consider taking a renovation loan package with your home loan provider. Your home loan provider (e.g. DBS) might offer some discount on your renovation loan, considering you already have a home loan with them.

How long can you take your loan for?

The loan tenure for a renovation loan is usually between 1 to 5 years, depending on your personal preference.

How much can you borrow on your loan?

The typical amount you can borrow on a renovation loan is either S$30,000 or 6 times your monthly income, whichever is lower. Banks typically require borrowers to have a minimum annual salary of S$24,000 – S$30,000. Thus, a renovation loan lies within the range of S$12,000 and S$30,000.

Find out more about renovation loans below:

Personal Loan vs Renovation Loan: How Do You Make Your Choice?

4. Personal loan

A personal loan is a type of unsecured loan that can be borrowed within a week of application. Sometimes, you can even borrow it within the day of your application.

What loan options do you have?

Banks like DBS, Citibank, HSBC, Maybank, UOB and Standard Chartered offer personal loans. Apart from banks, licensed money lenders like Cashmart, Katong Credit and Credit 21 also offer personal loan. BankBazaar also helps you to compare loans easily from different financial institutions.

Why you might need a personal loan

A personal loan is a quick way for you to get a sizeable sum of cash for your immediate need. This might be for financial emergencies like sudden hospitalisation, pay off outstanding credit card debt or to make a down payment for your wedding banquet.

How long can you take your loan for?

Personal loans have a varying loan tenure between 1 to 7 years. The usual loan tenure is 3 years. Before you get your personal loan, you need to commit to a timeline on how long you want to the loan tenure will be.

How much can you borrow on your loan?

Typically, you can borrow between 2 to 6 times of your monthly income depending on your loan provider. For high-income earners (at least S$120,000 salary per year), you can borrow up to 10 times of your monthly salary.

Find out more about personal loans below:

5. Revolving loan

A revolving loan is a type of loan that is extended to you by a financial institution with a pre-agreed limit. Credit card loan is a type of revolving loan that most people would be familiar with.

What loan options do you have?

Any bank that issues a credit card to you is essentially extending a revolving loan facility to you. The moment you get a credit card from a bank, you have entered into a revolving loan facility agreement with the bank.

Why you might need a revolving loan

Under a revolving loan, you can choose to withdraw, repay or even redraw loans any time. A revolving loan gives you the flexibility to borrow money without having to undergo any approval from the bank. If you have a short-term cash flow problem, a revolving loan can help you to tide over the cash flow problem.

How long can you take your loan for?

You have the liberty of taking as long as you like for a revolving loan. The only caveat is that there is a minimum monthly payment that you need to meet for your revolving loan. The minimum monthly payment is determined by the bank.

While the minimum monthly payment isn’t much, it is recommended for you to return your revolving loan as quickly as possible to avoid unnecessary interest rate charges. The interest rate charges on revolving loans can pile up quickly due to the high interest rate on revolving loans. If you only pay off the minimum payment, it will take you 8.5 years to clear a revolving loan of S$10,000.

How much can you borrow on your loan?

The credit limit on a revolving loan is similar to that of a personal loan. You can typically borrow 2 to 6 times of your monthly salary. For high-income earners (at least S$120,000 salary per year), you can borrow up to 10 times of your monthly salary.

Find out more about credit cards below:

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