9 Misconceptions You Might Have About Personal Loans In Singapore

Personal loans have had a poor reputation for ages, and the thing is, some people still have that bias deeply ingrained in their subconscious. For example, try telling someone you got a personal loan, and at best, they’ll only raise an eyebrow or tell you it’s ok.

Deep down inside, you know that look.

It’s the look that tells you that you can’t handle your finances. Or, that you need help with monthly budgeting.

It can even happen if you get a house loan for an HDB flat or a car loan. After all, nobody can honestly expect you to have $200,000 or $300,000 in your savings account, can they?

But even if they smile and congratulate you, they still give that look.

And here’s what’s even more intriguing:

You might have some misconceptions of your own about personal loans. Luckily, studies show that once you’re confronted with your misbeliefs, you can get over them faster.

So, let’s bust some myths.

1. Moneylenders Are Dangerous

Not everyone can obtain a bank loan. Some banks in Singapore impose stringent conditions, including:

• Minimum age: 21
• Maximum age: 65
• Minimum income: $20,000-$30,000/year
• Credit score: at least CC (1825-1843)

Side-note pro tip: Double-check if you meet all eligibility criteria before applying. Any rejection counts towards your credit score.

Unfortunately, most people don’t follow that advice – many of them don’t even know it. So, faced with rejection after rejection, they become desperate.

That’s very dangerous:

Loan sharks can sniff that desperation and prey on it. If you’re in a situation with no apparent way out, you can mistake an Ah Long for a licensed moneylender.

The problem is that many loan sharks impersonate legal agencies.

But licensed moneylenders’ activity is regulated by the Ministry of Law so:

• They can’t harass, intimidate, threaten, or use violence against you.
• They can only impose just a few charges, including:
  • 10% admin fee
  • 4%/ month interest rate
  • 4%/ month late interest fee
  • $60 late payment penalty
• They can’t increase your interest, installments, or the sum you owe however they please.
• They’re very open to negotiations if you can’t repay your loan.

Basically, licensed moneylenders are professionals. They’ll sign legit contracts, explain all the loan conditions, and will act courteously every time.

How do you recognise loan sharks? How can you protect yourself?

Well, the first step is to consult MinLaw’s list of licensed moneylenders. This list of licensed moneylenders is updated monthly. If the agency you found online isn’t there, run in the opposite direction.

2. You’re Only Taking Loans Because You Can’t Handle Your Finances

Well, that myth is obviously false too. After all, you can imagine a host of legit reasons for taking a personal loan:

• House loan to purchase your dream home
• Renovation loan to remodel your apartment or to get rid of pests
• Business loan to start your business
• A car loan to buy a vehicle that will help you move around faster
• Funeral loan if one of your loved ones passes

However, it’s clear why this myth exists.

Think of the stories you hear from the people around you, the media, or movies. There’s always the bad guy taking up another loan to feed his gambling addiction or that single mother who drinks too much instead of taking care of her babies. These are bad financial habits and even licensed moneylenders themselves don’t support this.

Indeed, some people aren’t financially responsible, but here’s the thing:

Licensed moneylenders or banks can’t simply trick you into getting into this situation.

MinLaw has established the legal background to prevent that from happening:

• Licensed moneylenders can’t impose more than 4%/month in interest.
• You can’t obtain a personal loan that’s worth more than $200,000 from a licensed moneylender. Usually, the cap is six times your monthly salary for licensed moneylenders, though banks can offer ten times your monthly income.
• Your total loans can’t amount to more than 60% of your gross monthly income. Also, your mortgage loans can’t represent over 30% of those gross earnings.

So even though at first these conditions can seem too strict, they’re there to stop you from snowballing into bad debt.

3. Personal Loans Ruin Your Financial Health

Now you know that licensed moneylenders MinLaw established laws to keep your debt from getting out of your control and that licensed moneylenders aren’t the same as loan sharks. But you can ask yourself this:

Isn’t even a small installment terrible for your financial health? After all, these sums, albeit tiny, come from your expense budget. That sounds legit at first.

But here’s something few people know because of a lack of financial education:

A personal loan is a tool that you can use to improve your finances.

For example:

• You can get a debt consolidation loan if you have too many preexisting loans that burden you with snowballing interest rates and deadlines. Amassing all of them into one will decrease your installments and your interest so that you can repay your debt comfortably.
• You can acquire a personal loan to acquit the down payment for your dream car. That way, you can secure a better job further away from your home.
• You can get a personal loan to renovate your home. Building a home office can help you focus better at work than working while your kids play around you.

But there’s another secret to personal loans:

If you pay yours diligently, your credit score will improve. It is evidence to financial institutions that you are responsible and can manage your finances when you make punctual repayments. Thus, you have more chances of securing better financial assistance in the future or even a better job if your employer checks that rating.

Looking for a customizable personal loan? You can apply with the top financial institution in Singapore here.

4. Only People With Fixed Salaries Can Obtain A Personal Loan

That’s false, either.

Singapore’s number of self-employed people has been on the upraising for a few years, reaching 14.7% in 2020. Freelancers don’t usually have fixed salaries, so it would be ridiculous to prevent this segment from getting a loan.

So, you can still qualify for a bank loan if you’re self-employed; you just have to bring proof of your income – such as bank statements or Income Tax Notice of Assessment.

Beware, though: some banks can require you to have a $30,000/year minimum salary. Conversely, a licensed moneylender can offer you a convenient personal loan even if your income is lower.

5. Apply For More Than You Need

Honestly, why would you do that?

Sure, extra cash is better than less cash – but not when you’re borrowing it because:

• A higher principal amount translates into more interest that adds up with time
• Your tenure gets longer, so that you’ll be indebted for more time
• Your installments grow
• More accumulated loans can decrease your credit score

6. You Can’t Get A Personal Loan Without Collateral

Sure, you can obtain a secured personal loan by using collateral if:

• You want to access more cash.
• Your credit score is low.
• Your income is low.

But that doesn’t mean you should always do it.

Sometimes, it’s better to go for a short-term fast cash loan that gives you access to a smaller sum than use collateral to get more money.

7. People With Low Credit Scores Can’t Obtain A Personal Loan

Banks in Singapore have a low-risk appetite, so they usually lend money to people with credit scores above 1825 (in the CC category).

By contrast, licensed moneylenders in Singapore have more convenient conditions. True, you can expect higher interest rates up to 4%/month than banks’ usual 10% effective interest rate (EIR).

However, you have more chances of getting a personal loan with a licensed moneylender because:

• They’re less interested in bureaucracy
• They care more about your current ability to repay the money
• They can craft affordable installments to make sure you’re repaying that loan comfortably.
• Some have prepared specific personal loans for people with low credit scores, with highly convenient conditions.

8. It Takes A Long Time To Apply And Receive A Personal Loan

That sentence may have been true a few decades ago when computers weren’t a thing.

Banks in Singapore may take up to a week to approve a larger loan. If you don’t borrow a considerable amount, you can expect your request to be approved in one-two business days. DBS or Standard Chartered can also process instant approvals.

Licensed moneylenders such as CreditMaster in Singapore offer quick loans as well.

It takes just a few minutes to fill in your online application, and you typically get a pre-approval message/ call in an hour.

Warning: Make sure your agent sets up a due diligence meeting at their headquarters. If they try to wire you the money without this meeting or in a parking lot, they’re acting illegally.

9. Foreigners Can’t Get Personal Loans

Foreigners living and working in Singapore can get personal loans, but the eligibility requirements and maximum sums are different to avoid loan defaults.

For example:

However, this is true: some banks and licensed moneylenders in Singapore may not offer you a loan if you’re a foreigner or ex-pat.

Here’s the solution:

Reach out to a reputable licensed moneylender who has crafted a Foreigners’ Loan option carefully to minimise both of your risks and to get you access to the money you need.