A Complete Guide To Unsecured Loans In Singapore – What Types Are Available And How Do They Work?

Personal loans, balance transfers, credit card instalment plans and credit lines are four common and popular unsecured loans in Singapore. Here’s how they work, and which one you should choose.  

Unsecured loans are a type of financial tool commonly found in Singapore. 

When someone applies for an unsecured loan, the lender provides the money without requiring a collateral or a security deposit.

Instead, the loan is approved based on the borrower’s creditworthiness, which is calculated using various factors, such as income level, credit history and existing level of debt.

Because the loan is not secured against a physical asset — such as a property or a vehicle — the lender does not have the right to seize such assets should the loan fail to be repaid according to the terms agreed. 

Instead, their only recourse would be to send debt collectors or initiate legal action in an attempt to recover the loan. As such, unsecured loans are considered highly risky for the lender.

Due to the lack of collateral or security, unsecured loans typically allow only small to moderate loans. In comparison, a secured loan such as a mortgage has a much higher loan limit, up to several hundred thousands dollars.

At-a-glance: Different types of unsecured loans in Singapore

Personal loan

Personal loans are ideal if you’re looking for a general purpose loan, or want to pay for multiple different expenses at once. 

This is because they have no restrictions on what you can use them for, unlike, say, education loans which can only be used to pay for school fees, or renovation loans, which can only be used to pay for renovations. 

Personal loans are provided on fixed terms, both in loan amount, and its duration or tenure. During application, you will specify the amount you wish to loan, and for how many years. 

In turn, the lender will inform you of the interest rate on the loan, applicable fees and charges, as well as the amount you have to pay each month. 

Once the loan is approved, the lender will credit your bank account with the money. From then on, it is your responsibility to repay the loan via making monthly instalment payments. 

You should strive to ensure you pay at least the instalment each month, and before the due date. Otherwise, you will incur late fees, and any balance amount that is past due will likely be subject to additional interest at a higher rate.

How much can you borrow:

• Up to 4x your monthly income

Pros:

• Fixed instalment amounts and tenure provides clarity of debt
• Offers steady and predictable debt management
• May be used for a wide variety of purposes and expenses

Cons:

• Instalment due dates are non-negotiable, and late payment will incur penalties
• May be difficult to keep up with if instalment amounts are too high and/or there is income interruption

Credit card instalment plan

Credit cards are useful and convenient when you want to make a big purchase, but if you do not have enough funds to pay it off in time, you’ll be subject to interest charges on the balance carried over. 

Instead, make use of your credit card’s instalment payment plan to pay off your purchase over several months, and without incurring any added interest charges.

Credit card instalment payment plans (IPPs) are very useful when purchasing furniture, home appliances and other high-value necessities. 

IPPs commonly have instalment terms of between one to three years. Each instalment will be added to your credit card bill for the month, so all you have to do is to pay your bill as per usual.

However, note that when you use an IPP, the limit on your credit card will be lowered by the corresponding amount. This is only temporary, though, and your credit limit will be restored as you make your instalment payments. 

How much can you borrow:

• Up to 90% of your unutilised credit limit

Pros:

• Ideal for paying for large purchases
• No interest charged (provided each credit card bill is paid on time)
• Convenient — simply pay your credit card bill as usual

Cons:

• Lowers available credit limit
• Requires a qualifying credit card, and only available at selected retailers

Line of credit

A line of credit (aka credit line) is a type of unsecured loan that is offered on a revolving term.

What this means is there is no fixed repayment term, and the money you borrowed becomes available again when you repay the loan partially or fully. 

Think of it as a pool of standby cash that you can borrow from when necessary, and make repayments to at your own discretion. 

Lines of credit offer flexibility comparable to those of credit cards, but have lower interest rates, making them a more affordable option.

They have advantages over personal loans too. 

With a credit line, no interest is charged until you make a borrowing; meanwhile, interest on a personal loan is charged immediately, whether you use the funds or not.

Also, you can repay your credit line at your own pace, and do not have to pay a fee for early repayment. Personal loans, on the other hand, mandate fixed repayments every month. They also impose a fee for paying off your loan before the stipulated end date. 

How much can you borrow:

• Up to 4x your monthly income

Pros:

• Offers comparable convenience and flexibility as credit cards 
• No interest charged until you use your credit line
• Can pay off at your own discretion

Cons:

• Interest charged daily on loan amount
• Maintenance fee required to keep the credit line active

Balance transfer

As its name suggests, a balance transfer is a short-term loan that is designed to help consolidate debt from other accounts or credit cards, making them easier to clear. 

The idea is to transfer all other debts onto a single credit card, saving you the trouble of having to keep track of multiple accounts and due dates. 

Even more importantly, balance transfers are offered at 0% per annum interest, which gives you a chance to break free from compounding interest. 

However, balance transfers aren’t exactly free of charge either — they typically have an admin fee — but they are still much cheaper than if you were to continue accruing compounding interest on your debt. 

Also, it is important to note that balance transfers have much shorter durations — between three and six months of 0% per annum interest are typical terms for balance transfers, although some banks may offer as long as 12 interest-free months. 

Hence, balance transfers should be used carefully, as any amount still leftover after the interest-free period ends is subject to interest charges at the prevailing rate for your credit card. 

Do note that the amount borrowed through balance transfers do not entitle you to cashback, rewards points, air miles or other usual perks.

How much can you borrow:

• Up to 90% of your unutilised credit limit, or as offered 

Pros:

• A convenient way to consolidate multiple debt into one
• Among the cheapest type of unsecured loans (provided you pay if off completely within the interest-free period)

Cons:

• Shorter in duration than other unsecured loans 
• Lowers available credit limit
• Not truly 0% — an admin fee is typically imposed

Read these next:
This Is How Much You Can Borrow From Different Loans In Singapore
What’s the Average Personal Loan Interest Rate in Singapore?
Four Types of Personal Loans: What You Need to Know
Top 6 Myths About Personal Loans, Busted
Balance Transfer: How Does It Work And Should You Get One?