When applying for a personal loan, you don’t think of a business or which investment to fund to yield returns. You’re typically thinking of how to pay off a debt, buy an expensive item or even plan a party.
No matter your reason, it’s important to know, what do you need to apply for a personal loan? This article will cover personal loans and how to navigate them.
What Is A Personal Loan And How Does It Work?
A personal loan is any loan you incur to settle personal expenses. For example, you can use it to handle a medical emergency, go on a trip or even pay for your wedding. You can also take a personal loan when:
- You’re moving to a new place and need to cover moving expenses
- You want to renovate or repair your home
- Someone you know dies, and you need to pay for the funeral
Essentially, there’s no limit to the personal expenses a personal loan can cover. But note that some lenders can control what you do with your loan. For example, some lenders won’t let you use your loan to pay your school expenses or get rid of business debt.
Types Of Personal Loans In Singapore
Before applying for a loan in Singapore, know what expenses to channel the funds. There are four types of personal loans, and each come at different interest rates and can apply to specific situations.
So let’s take a look at these loans and decide which is best for your situation.
Personal Instalment Loan
If you have a wedding or need to pay off a debt ASAP, you can apply for a loan in personal instalments.
A personal instalment loan is when you borrow money and must pay it back in fixed instalments. The lender gives you a lump sum – everything you need from the beginning – and you have to pay back a fixed amount at intervals.
You pay the same amount for all the instalments during the length of the loan. What do you need to apply for a personal loan?
- Your credit score or report
- Your transaction history
- Your income proof
- Previous or current debts
- Amount and tenure of the loan
When you want to take a business loan, the lender can rely on your revenue and use your office as collateral. But with a personal instalment loan, the lender has no collateral or safety net. So it’s riskier, which is why you should have a good credit score or transaction history before applying for the loan.
A credit line is a fixed amount of money you can borrow whenever necessary. Unlike personal instalment loans, where you get a lump sum, a line of credit gives you the amount you need in bits.
For example, let’s assume you applied for a credit line of $10,000. The lender will assign the amount to an account and give you a card, special check or transfer the money to your checking account. Then you can take part of the money whenever you need it.
With a credit line, you pay interest when you use the money. But you must pay the loan back in time, or it could affect your credit score.
Although this is one of the best personal loans, you should consider the following:
- If you’re getting a credit line to finance short-term goals, like paying for dinner, it’s a sign you don’t need it. You have financial issues and should sort them out first.
- A credit line is a bad idea if you don’t have a stable income. If you miss the repayment date, the lender may take your collateral if you applied with any.
- If you know exactly how much you need, it’s best to take a personal instalment loan.
While applying for a credit line is not a bad idea, it’s crucial not to take it to pay off other debts or splurge on a vacation.
Balance transfer makes it possible to transfer your credit card debt to another card. So since your debt will be in a new account, you can use your old credit card again.
But what happens to the debt in the new account? Before moving all your credit card debt, ensure the new card has a 0% APR offer. It will mean that you can pay off your debt without interests. You wouldn’t have to worry about high interest rates as long you can pay the debt monthly during the 0% APR offer period.
When moving your debt to a different card, you would be required to pay 1%-5% of the total amount you’re transferring. It takes around two weeks for your transfer to be approved, but it’s worth the wait.
A downside to balance transfer is that if you don’t pay off the credit card debt on the new account, you could end up accruing more interest.
Debt Consolidation Plan (DCP)
The debt consolidation plan is a means to unify all your loans in one account and pay them off at once. So let’s say you owe four banks. Instead of paying them individually, which costs more, you can get a DCP account.
Are you wondering, “how much loan can I get from a bank and pay off with DCP?” What you can get from a bank depends on the bank. But you can transfer all your debts to the DCP and pay them off at once without multiple calculations.
But you can only qualify for a DCP when your debt is around 12x your monthly income.
Additionally, the debt consolidation plan does not cover all loans, like:
- Joint accounts
- Renovation loans
- Education loans
- Medical loans
- Business loans
The interest rate can vary from 3-12% per annum.
What Do You Need To Apply For A Personal Loan?
When applying for a personal loan in Singapore, you’ll need to submit three essential categories of documents:
1. Proof Of Income
The lender has to ensure you have a source of monthly income to determine your loan amount. You need a continuous assessment of CPF for personal loan application and the following:
- Notice of Assessment for your recent income tax
- Latest computerized payslip
- Bank statement showing credit alerts of your salary in your bank account
- Any other income statement the lender needs
It’s to ensure the lender can trust you to pay back.
2. Copy Of Your ID
The lender will also ask for a copy of your identification card, whether it’s your NRIC or employment pass.
3. Employment Information
The lender may ask for your CPF for a personal loan or employment pass.
Sometimes, the lender may keep a copy of your documents for future reference. So ensure you submit a photocopy and not the original version.
How Much Can You Borrow?
If you’re wondering, “how much bank loan can I get?” It depends on your monthly income. But the limit is around $30,000.
When you earn well and maintain good credit health, you can get the lowest interest rate on personal loans in Singapore.
How Much Can I Borrow For Home Loan In Singapore?
You can’t use a personal loan to buy a house or clear your mortgage. But you can get a home loan of up to $375,000.
What To Consider Before Applying For A Loan
Before applying with the lender that’s best for personal loans, you should consider the following factors:
1. Can Your Monthly Income Settle The Loan?
The debt you incur shouldn’t be above your annual income. If not, the interest rates will overwhelm your monthly income.
2. Is The Loan For A Relevant Cause?
While nobody can tell you how to spend your money, you should know that a loan in Singapore doesn’t belong to you. So if you don’t have a pressing need, you don’t need a loan, especially if you’re just trying to impress people.
3. What Is The Lender’s Interest Rate?
The lender’s interest rate is also a determining factor when applying for a loan.
If you keep accruing debt without paying them off, you can hurt your credit health and may not get loans again for a while. It’s best to have a rigid repayment plan.
Best Personal Loan In Singapore
A personal loan can help you sort out essential needs, but you should apply for one when you’re sure you can pay it back.
If you want one of the best personal loans in Singapore at a reasonable interest rate, contact CreditMaster. You can apply for a loan and get it approved in minutes without the hassle of printing multiple documents. Even if you’re not a Singapore resident, you can still get an expat loan.