If you are a Singaporean, and you are in the small percentile of people that can afford to pay for everything without taking out a loan, you are a very lucky person. Otherwise, every Singaporean takes out some kind of loan at some point in their lives for one reason or another: school fees, medical bills, car payments, housing and renovations, etc. There are several outlets that you can take out loans from in Singapore, such as banks, HDB (Housing Development Board), parents, friends, but never the illegal loan sharks, even if you are that desperate.
There are many benefits to taking out loans, but those aren’t the only reason why you should consider when taking out a loan. Loans come with their advantages and disadvantages, depending on the type of loan, or the institution you are taking it from.
One of the most popular loans to take in Singapore, you can use them to pay for anything you want to, including vacations, food, and even on your upcoming wedding. These loans have no use restrictions, and you can take them out when other loans can’t be used. For example, you can’t take out a car loan to pay for the renewal of your COE, but you can take out a personal loan to renew that COE.
Personal loans require a lesser number of documents from you that other types of loans, such as car loans or home loans. Because of this smaller number of documents needed, personal loans are processed faster by banks, releasing the requested amount to you in mere minutes.
Personal loans are also very convenient to take out since they do not need any collateral.
Personal loans are only given to Singaporeans who earn a certain annual income and are under 60 years of age. These eligibility criteria is to ensure that you do lot default on your payments for any reason. It is also the reason why you are not required to submit a large number documents, as they trust that you will pay back the loan, and on time too.
You can only take out a personal loan if you have a good credit score and a low debt-to-income ratio.
Education loans are another type of loan that is popular with Singaporeans, and they are available to everyone that is a student. With low interest rates and very high approval rates, education loans are suitable for students whose parents cannot afford to pay them through school.
Education loans have very few disadvantages. You will have to pay it off gradually once you graduate, but apart from that, education loans don’t have any demerits. Having an education is a better option than going through life without one, so taking an education loan is a good idea. An education also increases your chances or getting great job opportunities that will help you pay off your loan. However, you need to plan carefully and far ahead before deciding to take out a loan for your education.
Payday loans are those that you take out to get you through to your next payday. Payday loans are also loans that you need to pay off quickly, within a time period of a month at most (which is the time it takes to get your paycheck). Since it is a payday loan, you pay it off as soon as you get paid at work.
Payday loans are disbursed quickly and in cash, and you don’t need to be subjected to a rigorous background check before you are approved for a payday loan. All you need is a steady income/employment status, and a good reason for taking out that loan.
You cannot borrow more than you earn. If your loan application is for an amount higher than your monthly income, your request will be rejected.
Payday loans also have high interest rates, so paying off the loan as soon as possible is a necessity.
Missing deadlines on payday loan payments will negatively impact your credit score, and you may even have to take out another loan to pay off the loan whose deadline you missed.
HDB (Housing Development Board) Loans
HDB loans are not the same as housing loans given by banks, but they are loans offered by HDB. HDB can be lenient if you have missed out on a payment, more so than banks.
If you are using CPF to pay for an HDB apartment or flat, you will have to get a Home Protection Scheme insurance plan. Home Protection Scheme, or HPS, is an insurance plan that protects its members or subscribers against losing their HDB apartment or flat due to terminal illness, permanent disability, or death. HPS members are insured till they are 65 years old, or until they finish paying off their house loans.
This means that the CPF board will absorb any outstanding loans if anything happens to you that would lead to your not completing your payments.
HDB loans have higher interest rates than bank loans, especially since they are competing against each other. As such, bank loans will always try to make their interest rates lower than HDB loans.
At least one of the applicant applying for the loan has to a citizen of Singapore, with a total household income of less than S$10,000.
Bank’s Housing Loans
Bank’s housing loans have lower interest rates and are a great idea for those who want a mortgage plan with good rates.
You must have a yearly income of S$30,000 to be eligible for a bank/housing loan.
If you default on your payment due to any reason at all, be it sickness or disability, the consequences are bad, as there is no insurance scheme in place to help you like HPS.