Personal Loan Vs. Bridging Loan

Personal Loan vs Bridging Loan: Which is Better for Purchasing New Property?

There are a lot of reasons to move to a new property, like getting assigned to a different area, starting a family, or simply just wanting to upgrade. But before you get the chance to move out from your existing property, where are you going to get the money for the purchase, especially if your own funds are insufficient?

Aside from conventional home loans, two of the options available to you for purchasing a new house. You can use a bridging loan while you wait for the sales proceeds from your old house, or you can use a personal loan.

Before you make a decision between a bridging loan and a personal loan, you should first review their differences.

Bridging Loan vs Personal Loan

The Comparison:

Loan Interest Rate Tenure Property Type
HSBC Personal Loan 3.4% (6.5% EIR) Up to 3 Years All types
CitiBank Quick Cash Loan (New Loan Customers) 3.45% (6.5% EIR) Up to 3 Years All types
CitiBank Quick Cash Loan (Existing Customers) 4.55% (8.5% EIR) Up to 3 Years All types
UOB Personal Loan 3.4% (6.42% EIR) Up to 3 Years All types
OCBC Personal Loan 5.43% (11.47% EIR) Up to 3 Years All types
DBS Personal Loan 3.88% (7.9% EIR) Up to 3 Years All types

 

Bridging Loan

A Bridging Loan is a home loan that is used specifically to bridge the sale of an old property while purchasing a new one. It is a short-term loan that should be paid once the sales proceeds are received. 

This home loan uses the equity of your existing home to pay off the new property quickly while you wait for the property transaction to complete and repay the amount in a lump sum payment.

Simply put, if you’re selling your old property while buying another, you can use the bridging loan to cover the new home’s purchase price and other expenditures.

Pros

  • With a bridging loan, you can present better offers to property sellers.
  • You won’t have to touch your savings or CPF funds if you get a bridging loan.
  • A bridging loan lets you jump right into your next property purchase before you’ve sold your old property.
  • You can use the bridging loan amount for other expenses.
  • You can make a larger down payment.
  • You won’t have to rent storage or temporary space for your things.

Cons

  • You will be risking your property as collateral
  • Not every bank offers bridging loan packages. Some banks offer bridging loans along with their home loans.
  • Bridging loans have interest rates that are on the high side which can increase your monthly repayments.
  • Depending on the loan, there may be a period where you’re paying for multiple home loans before you get your sale proceeds.

Top Bridging Loans in Singapore

Loan Interest Rate Tenure Property Type
DBS Bridging Loan 4.25% based on DBS prime rate Up to 6 months All types
Standard Chartered Bridging Loan 3M SIBOR + 2.00% p.a Up to 6 months HDB flat and Private Property
UOB HDB Home Loan Determined upon application, between 4% to 5% Up to 6 months HDB flat and Private Property
Maybank HDB Home Loan Determined upon application Up to 6 months HDB flat and Private Property

 

Personal Loan

A Personal Loan, on the other hand, is used to cover a personal expense. Unlike a bridging loan, its tenure can generally range from two to five years, where the amount is paid off in monthly instalments.

Since you can use a personal loan for any personal purchase, it can be used to cover the new property’s purchase price.

Pros

  • Application is easy because of lenient requirements.
  • You can get one in most financial institutions.  
  • Low risk to the bank if you default on repayment.
  • Flexibility of use.
  • Weekly/monthly instalments. 
  • Disbursement can be as quick as a few hours.

Cons

  • Terms may not be the best substitute for home loans.
  • Using one as a home loan substitute may be considered a red flag for many lenders.

Top Personal Loans in Singapore

Loan Interest Rate Tenure Property Type
HSBC Personal Loan 3.4% (6.5% EIR) Up to 3 Years All types
CitiBank Quick Cash Loan (New Loan Customers) 3.45% (6.5% EIR) Up to 3 Years All types
CitiBank Quick Cash Loan (Existing Customers) 4.55% (8.5% EIR) Up to 3 Years All types
UOB Personal Loan 3.4% (6.42% EIR) Up to 3 Years All types
OCBC Personal Loan 5.43% (11.47% EIR) Up to 3 Years All types
DBS Personal Loan 3.88% (7.9% EIR) Up to 3 Years All types

 

Factors to consider before taking either bridging or personal loan

1. Your Property as Collateral

For a bridging loan, banks will be using your property as collateral for loan repayment. You need to ensure that you can repay on time if you don’t want to risk losing your hard-earned asset.

For a personal loan, your property is safe from being used as collateral.

2. Proper Property Valuation

As a golden rule, before you even think about applying for a personal or bridging loan (especially for the latter), you need to make sure that sales proceeds are sufficient and that you aren’t overestimating its amount.

3. Interest Rates

Different financial products will have different interest offers. Before applying for any, you must take a look at the different rates when you shop around.

4. Capitalised Interest Bridging Loan & Simultaneous Repayment Bridging Loan

There are two types of bridging loans in Singapore: Capitalised Interest and Simultaneous Repayment.

Capitalised Interest Bridging Loan is used to pay the whole price of a new property and payments will only begin once you get the sale proceeds of your previous property, meaning you won’t have to pay two loans at the same time.

The Simultaneous Repayment Bridging Loan, on the other hand, is the other way around. You have to pay two loans simultaneously, those being the mortgage and the new purchase. This can be difficult for a while until you get your sales proceeds.

5. Temporary Bridging Loan is NOT for Home Purchase

Don’t confuse the bridging loan with Singapore’s Temporary Bridging Loan Programme. Despite the similar name, it is actually business financing offered by the Singapore government to provide working capital to the many small businesses affected by the COVID-19 pandemic.

Loan Application Form

How to apply?

1. Bridging Loan

The application process for a bridging loan will vary per lender, but will typically follow the same eligibility requirements if with a few variations.

Eligibility:

  • At least 18 years old
  • Must exercise the Option to Purchase (OTP)
  • Singapore Citizens, Permanent Residents and foreigners who are in the process of selling their property in Singapore.
  • A good credit score.
  • S$1500 minimum monthly income for citizens and permanent residents
  • S$2,000 minimum monthly income for foreigners.

Requirements:

  • NRIC Proof of income and employment
  • Proof of residence
  • SingPass to log in to CPF, IRAS, and HDB websites
  • Option to Purchase (OTP) document, which states that you have the exclusive right to purchase the said property.
  • Your CPF withdrawal statements.
  • Outstanding bank loan statements.

 

2. Personal Loan

Eligibility:

  • At least 18 years old
  • Minimum monthly income of S$1,500 for citizens and permanent residents
  • Minimum monthly income of S$2,000 for foreigners

Requirements:

For citizens and permanent residents:

  • NRIC
  • Proof of income and employment
  • Proof of residence
  • SingPass to log in to CPF, IRAS, and HDB websites

For foreigners:

  • Passport
  • Work permit
  • Proof of residence
  • Proof of employment
  • Proof of income

 

Other things to consider

1. Is a bridging loan a good idea?

Whether you’re planning to upgrade or downgrade your current home, it’s important to weigh the pros and cons before jumping in on short-term loans.

2. When is the best time to use a bridging loan?

A bridging home loan is best used for their specific purpose, which is for covering the purchase of a new home while selling the old one.

Many people use bridging loans to upgrade their home, but it can be used for all property types.

3. When is it ideal to use a personal loan?

It’s an ideal choice if your credit score prevents you from getting other options. They are available in most banks and institutions, and won’t require any collateral.

4. Is a bridging loan more expensive than a personal loan?

Both loans can provide you up to 6x of your monthly income, but bridging loans have a higher cap of S$200,000 while a personal loan can only go up to S$50,000.

5. What other alternatives are there for property purchase down payment?

Some of your options include

  • HELOC.
    A home equity line of credit allows a homeowner to take out a line of credit against their home equity with payment periods that are as long as 20 years.

  • Home Equity Loan.
    A home equity loan also allows homeowners to borrow against their home equity repaid with a single sum payment.

  • Line of credit.
    Unlike bridge loans, lines of credit can give you exclusive access to funds that only incur interest when you take out money. Terms can be as long as 10 years, and rates can be as low as 7% from traditional banks. Take note that getting a business line of credit from a bank can be difficult, and online lenders impose higher rates typically range from 4.8% to 99%.

  • Moneylender Personal loan and Bridging Loan.
    Banks might be the first choice for financing, moneylenders present another financing source for both personal and bridging loans, especially if your credit score isn’t up to bank standard.

 

The Bottom Line

Getting a new home can be costly, and you will likely need financing to complete your purchase. That said, choosing a financing option between a bridging loan and a personal loan must come with the consideration of your specific situation, as both will have their own benefits and disadvantages.

You should pick a bridging loan if:

  • You have enough monthly income to get a bigger amount for financing.
  • If you prefer to make a single payment once you receive your loan proceeds.
  • You’re sure you can make the payment within the given period.

You should pick a personal loan if:

  • A personal ultimately has less risk, because bridging loans put your home on the line.
  • If you prefer to make your payments in instalments.
  • If you have a lower score.

Whichever financing option you choose, reach out to Instant Loan. We’ll thoroughly review your financial situation and give you a curated list of loans from the top licensed moneylenders in Singapore.

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