Life situations sometimes force us to borrow from lenders to finance our everyday needs. Having debt is neither good nor bad β what matters mainly is your ability to repay it within the stipulated time. If you aren’t careful, your debt might drain you and give you a bad reputation.
As you look to borrow, it’s essential to define what exactly you want to do with the loan. Understand that different loans cater to different purposes, and your financial lender will help identify the loan that perfectly fits you.
Having said this, some forms of loans that exist include the secured loan and the unsecured loan. Today we talk about the latter. What is an unsecured loan? What are its characteristics and the types that exist?
Read on our blog to answer this and more queries about unsecured loans!
Unsecured Loan: What Does It Mean?
An unsecured loan does not require collateral when borrowing. By providing collateral, you indicate your assets, such as a car or a house, that your lender will use as security. In case of default, they might go for your assets to recoup their loss from the defaulted loan.
This kind of loan is pretty common in Singapore. Your lender will not ask you to admit any assets before approving the loan. Instead, they will assess your creditworthiness by checking your credit history, income level, and existing debt.
When a lender gives you an unsecured loan, they are taking a risk. This loan is not secure; therefore, if you default, the moneylender has no right to seize your assets.
Loan issuers, however, can initiate a legal case to recover the money. Alternatively, they can send debt collectors to collect the defaulted money. That’s why unsecured loans are often only granted to people requiring small amounts.
Common Features for Unsecured Loans
All unsecured loans in Singapore typically have the same characteristics. The main feature is what we’ve mentioned above β They do not need collateral. Here are more characteristics for unsecured loans:
1.Β Β Β It is Multipurpose
When we say that an unsecured loan is multipurpose, one can use it for different purposes. People taking unsecured loans can use them to pay their bills, fund their lifestyles, and consolidate their debts from different financial institutions.
2.Β Β Given Based on Your Credit Worthiness
Your borrowing limit primarily depends on your creditworthiness. Most lenders will check your credit score to ascertain whether you qualify for the unsecured loan. If you have a high credit score, you have the freedom to borrow more from Singaporeβslicensed financial institutions.
3.Β Β It can Either Be a Terms Loan or a Revolving Loan
The unsecured loan comes in two forms: Term loan and revolving loan. An example of a term loan is a personal loan. In this case, you will be required to pay a consistent amount over a stipulated period.
On the other hand, in a revolving loan, your lender agrees to lend you cash that’s up to a specific limit. You must make minimum monthly payments that your creditor requires until you fully complete your payment. There is technically no specified time to complete the repayment.
A revolving loan gives you the freedom to clear the loan based on your capability. It is, however, worth noting that the longer you take to clear the loan, the more interest it accrues.
4.Β Requires Proof of Income
Before you get an unsecured loan in Singapore, your lender will need to confirm that you have a source of income. Your bank will only approve giving you a loan they believe you can comfortably repay.
5 Types of Unsecured Loans
The most common types of unsecured loans in Singapore include:
1.Β Β Β Personal Loans
A personal loan is for general uses β So you can use it for whichever purpose you intend, including paying for a holiday, wedding, education, shopping, and even purchasing a car. Upon approval of the personal loan, your lender banks the money into your checking account.
Personal loans attract lower interest rates than credit cards, and you can borrow up to ten times your monthly income. Furthermore, they feature extended repayment periods in which you pay fixed monthly instalments.
2.Β Β Balance Transfer
A balance transfer helps borrowers merge their debts from different bank accounts into a single credit card. They, therefore, enjoy low-interest charges and a seamless time paying their debts. Most balance transfers feature a 0% introductory interest rate which can last from 6 to 12 months and then revert to the standard rates.
By transferring all your credit card debts, you do not risk forgetting to pay therefore attracting a fine. A balance transfer is a perfect plan when you want to pay your debts quickly.
3.Β Β Line of Credit
This is an unsecured loan in which the lender offers a specific amount of cash that you can borrow. A line of credit is more like a revolving loan since you can make repayments at your pace and the interest rates are low. There is always money to borrow once you partially or fully repay your loan.
If you have periodic expenses, a line of credit will be the ideal loan. Also, it is perfect for people who are unsure when next they require funds.
4.Β Credit Card Instalment Plans
These are unsecured loans that credit card issuers in Singapore offer and are primarily used for big purchases. Credit card instalment plans attract zero interest rates and have flexible repayment periods. Your eligibility for this kind of loan differs depending on your card provider.
5.Β Β Debt Consolidation Plan
You can also consolidate all your debts with high-interest rates into one unsecured loan with lower rates. By doing this, you get lower monthly instalments with one monthly due date. Also, you can now quickly repay your loan, unlike when you had multiple loans from different creditors.
Getting an unsecured loan is excellent, especially when you have a good credit history and a way to repay it. It enables you to finance large purchases, consolidate your debts, and more. It is, however, crucial to ensure that the licensed lender issuing you the loan has favourable interest rates and repayment plans β So settle for a creditor who favours you the most.
Avis Money Lender is a licensed issuer in Singapore, offering you the best terms for your unsecured loan. Simply present the proper requirements to us, and we will finance that small or big purchase you are about to make without collateral. Contact us today to learn more about our loan packages.
