If you’re looking for a personal loan in Singapore, chances are you’ll need to choose between two key loan types: secured loans or unsecured loans. The main difference between the two is that secured loans, like mortgages, home loans and car loans, are tied to collateral or personal assets. In contrast, unsecured loans, like revolving loans, credit cards or a personal loan, are not.
But which of these loan variations is right for you? And are secured loans a good idea? Let’s take a look at the basics in this article to help you make better financial decisions.
What Is an Unsecured Loan?
Simply put, an “unsecured loan” is any kind of loan a borrower can apply for with their money lender or bank that doesn’t involve a pledged asset, property or collateral. An unsecured loan can be used to pay off credit cards, student loans, and various other types of debt.
These loans are very flexible and can also be used to fund the purchase of a holiday, property repairs or almost anything else a borrower might desire.
How Does an Unsecured Loan Work?
There are hundreds of examples of unsecured loans on the market, from different personal loan variations like renovation or car loans and lower interest personal loans, to term loans and revolving loans.
The terms and conditions governing each will be slightly different – and we’ll explore this later – but generally speaking, an unsecured loan will usually be:
Meaning you can use it for many purposes, such as paying overdue bills, settling credit card debt or using it as a car loan. Keep in mind, however, that specific car loan, renovation loan or other niche type of loan could a bit be more restrictive than a standard deal.
2. Granted based on your creditworthiness
Your bank or money lender will always take creditworthiness into consideration, which includes credit scores, credit information and ability to repay the loan at the agreed rate. As with any loan, your credit and credit score will be very closely considered.
3. Approved as a term loan or revolving loan
This will depend on what kind of repayment terms you opt for. You’ll also need to find an appropriate interest rate, fees and loan amount that suits you.
How Is It Different From Secured Loan?
An unsecured loan is granted based entirely on creditworthiness and your capability to repay. This is the main difference to an asset-linked secured loan, like a home loan or mortgage.
While a secured loan could see your pledged asset – i.e. your home – seized by a bank or money lenders if you fail to repay the loan on time, or keep up with your repayments, an unsecured loan has no link to any assets or collateral whatsoever.
This means that you will never be at risk of losing your home or any other valuable asset if you struggle with repayments, max out your credit limit and encounter any unforeseen problems paying back the loan. However, borrowers can expect to pay higher interest rates for this privilege.
Types of Unsecured Loans
Whether you’re looking for a loan to put towards purchasing a car or investing, or you’d like to fund some home improvements or pay off your credit cards, there are lots of types of loan available. Let’s take a look at the three most popular examples.
1. Revolving loan
With a revolving loan, a bank or money lender will grant a loan amount to a borrower up to a pre-agreed limit. Borrowers will have to make minimum monthly repayments, but there’s usually no fixed tenor or period – enabling the borrower to repay as quickly or as slowly as they like.
2. Term loan
In contrast, a term loan will require you to make a set number of repayments over an agreed time period or tenure. Examples typically include personal loans and car loans, and interest rates are usually very competitive – especially if the borrower compares loans using Moneylender Review.
3. Consolidation loan
A consolidation loan is essentially a debt refinancing programme aimed at any borrower who wants to clear their debts in a low-cost way. These loan types will enable the borrower to consolidate all of their separate unsecured loan balances from different money lenders in one place, such as an unsecured credit facility.
Why Choose an Unsecured Loan?
Naturally, the type of loan that best suits each individual will vary from borrower to borrower – but how do you decide whether an unsecured loan is right for you? Let’s take a look at the key pros and cons.
1. No collateral needed
As unsecured loans don’t require any collateral, no bank or money lender can claim any property or assets in the event that the borrower defaults.
2. Perfect for financial emergencies and unforeseen debts
Unsecured loans are perfect for unforeseen financial emergencies, as you can usually get your hands on the money faster than with other loans.
3. Greater flexibility
Unsecured loans typically have more flexible terms, especially in regard to what you are able to use the loan on. Vehicle purchases, home renovations, holidays and more are usually all 100% fine – as is paying off a credit card, student loans or other debt.
4. Special offers are common
Full advertiser disclosure here: special offers and deals are very common on unsecured loans, so shopping around could save you some serious money and help you repay any debt more cost-effectively.
1. It might be difficult to get lower interest rates
In most cases, unsecured loans have higher interest rates than other types of loans, but you can always use Moneylender Review’s comparison service or take other measures to find the best deals – and our service doesn’t even require so much as setting up an account!
2. Approvals aren’t always easy
Depending on the money lenders you approach, an unsecured loan might be more difficult to obtain; particularly if you have bad credit scores or a poor credit history. We recommend approaching money lenders instead of banks for more flexible terms, faster approvals and a more lenient approach toward your credit history and credit life.
Where to Apply?
If you’re a would-be borrower looking for the best loans available in Singapore, look no further than Moneylender Review. Regardless of your credit rating, financial and debt situation, we can help you compare the best unsecured, collateral free loans in Singapore. With us, you’ll find the best loan amount, repayment costs and promotional terms to suit you. The result? Your perfect loan.
So, why not compare every unsecured loan version available to you and find the best loan offers with Moneylender Review today? We’ll help you improve wealth management, reduce your debts and make better financial decisions in your life based on more accurate information.