There are many types of loans offered by all types of financial institutions in Singapore. In whatever loan you apply for, there are always certain factors such as the interest rate and the repayment period that will concern you most.

What are the types of loans?

Generally, there are 2 major types of loans available and offered by banks and financial institutions. They are:

  • Secured Loans
  • Unsecured Loans

It is extremely important to understand what the 2 types of loans entail as it will ensure that you are not on the losing end. This is because knowing what the differences give you a better headstart and you can then plan your finances better.

Secured Loans

A secured loan is understood to be one where you borrow a certain sum of money base on collateral or some form of guarantee. This type of loan basically benefits the money lender because it means that the risk is much lower. When you take this loan, you will have to use a personal guarantee where it somehow gives assurance to the moneylender that he can get their money back. What you can use as guarantee (or collateral) includes:

  • a property like a house or shoplot
  • a fixed-deposit or long-term savings
  • shares or other assets

In this context, it must be noted that the creditor will have the least risk because the collateral will be possessed if the debtor fails to pay the loan.

Unsecured loans

As the name implies, unsecured loans refer to the types of loans with no collaterals or any form of guarantee. In other words, the loan is offered to the borrower base on trust and forecasted for the coming months.
For example, when you have available in your credit card, it is a form of unsecured loan. Take note that you have been offered the amount that you can use without any form of guarantee. In other words, the bank that offers the credit card is taking a risk (higher than unsecured loans) that you might fail to pay back. However, before an unsecured loan is given to you, the bank will carry out certain checks to minimize their risk as much as possible. This includes:

  • Employment – to ensure you have a steady income
  • Annual income – to identify how much you can borrow
  • Current debts – to evaluate your ability to pay back the amount owed
  • Credit scores – to determine any outstanding or bad debts you have

Which loan should you go for?

Having known what a secured and unsecured loan is, which one then would be your best choice? The main issue mostly concerned by creditors would be the risk. This is the very reason why moneylenders will charge higher interest rates as they want to minimize their risk. Furthermore, they would want to get their money back especially in situations when the loan amount is very high.
You would want to take a secured loan if:

  • Your credit history is poor. Your chance of getting an unsecured loan would be very low
  • You want to borrow a lot of money. With collateral, you can borrow up to the value your asset has
  • You want to negotiate on interest rates. Since you are using some form of guarantee, you can negotiate for more attractive interest rates

On the other hand, unsecured loans would be ideal if:

  • You are not intending to borrow a lot of money
  • You have confident of repaying back the amount in due time
  • You intend to pay back in the shortest time possible and you have the ability to do so

Types of unsecured and secured loans

In Singapore, banks and financial institutions offer many types of secured and unsecured loans. Among the unsecured loans, those that are commonly offered include:

  • Personal loan – Among the most popular types of loans in the markets. You get fast cash available and in most cases, there are no questions asked as to why you need the cash
  • Education loan – This is the cash used to pay for your tuition fees which are in the tertiary levels. In most cases, they are used for private institutions or to study abroad
  • Renovation loan – You can borrow this loan to help pay for the renovation or to give your home a whole new makeover.
  • Payday loans – this loan is quite popular which is you might need usually for emergencies. A sudden payment is required but it is not payday yet. So it is short-term
  • Debt Consolidation Loan – This loan helps you to manage your debts better. What the bank will do is to pay off all your outstanding debts and consolidate under 1 account

As for the types of secured loans, there are:

  • Property loans – sometimes called mortgage loans or home loans, it is among the most popular one in the market
  • Vehicle loan – This loan helps you to finance the purchase of a vehicle as they are quite costly in Singapore.

Ultimately, you will need to choose which one is most suitable for you. As mentioned, look at what you need. Think about how much you can pay back and then decide. Look for the one with the lowest interest rate and one which suits your current financial situation.