A personal loan can give you a great experience when you require financial help to achieve your life dreams or meet your emergency needs. Unlike many credit facilities, they have no end-use restrictions, meaning you can apply for the loan and use the approved amount to fund any project or activity of your choice. What do you need to apply for a personal loan? Banks and licensed money lenders can have some unique requirements, but there are essential documents you can never leave behind.
When applying for the best personal loan in Singapore, ensure you have the documents that prove your identity, income status, residential address, and more. This article covers all the important details about personal loans, including the key documents and how you can apply for the best loan today.
A personal loan is a flexible credit facility that allows you to meet various financial needs without collateral. These loans have quick approval and will enable you to build your credit score.
Since there’s no need for collateral, personal loans are classified as unsecured.
How does a personal loan work? When applying for a loan, you start by researching to ensure you get the best one. The same applies to personal loans because you want to meet your financial needs and repay the loan within the period specified in your contract with the bank or licensed money lender.
Some people mistakenly think repaying the debt only involves paying the principal back. On the contrary, you’ll refund the lump sum you borrowed (principal), interest, and other charges, such as administration fees.
Depending on the contract’s terms, you might be required to pay a fixed interest rate throughout the loan tenure. This means the lender determines the amount you’ll need to pay in advance. However, if you breach the contract, you may incur other charges, such as a lateness fee. Personal instalment loans and a few other personal loans work this way.
Some personal loans, like a credit line, will cost you interest based on the loan duration and the amount you’ve borrowed. So, the lender will only stop charging you interest once you fully repay the loan. Depending on your financial situation, this can be costlier.
As we’ve said, there are several personal loans, and the best options depend on your needs. So, whenever you are looking for the lowest interest rate personal loan in Singapore, start by finding out which one suits you best.
Here are the four main types of personal loans you can consider before applying for a loan:
We’ve used credit lines as an example above because many people love that it allows them to draw money whenever needed. It will enable you to borrow depending on your monthly income. However, you have to pay an annual fee ranging from approximately $60 to $120.
Besides, whenever you withdraw the money, whether by going to the physical bank, through internet banking or via ATM, you’ll be charged interest, which often varies between 18% and 22%.
As the name suggests, banks offer a debt restructuring programme to help individuals like you consolidate their unsecured loans into one at a lower interest rate.
This debt consolidation plan can help if your debt exceeds 12 times your monthly salary. You pay a one-time processing fee from 0% to 3% of the loan amount when approved. The loan tenure ranges from one to ten years.
However, this programme only applies to loans you secure from participating financial institutions and banks in Singapore. At the same time, the following types of credit facilities are excluded from it:
Balance transfer loans work almost the same way as debt consolidation plans, as they allow you to transfer your credit card debts to an affordable account or credit line. It’s more like an interest-free loan because you won’t pay any interest if you settle the credit card balances within a given period.
You pay a one-time processing fee, ranging from 1-5% of the loan amount, and get up to four times your monthly salary. Besides, the loan tenure is between three and 18 months.
After the interest-free period, the interest rate increases to 17-28%.
A personal instalment loan, also known as a term loan, is a personal loan that you can get from a licensed money lender or bank in Singapore.
We said earlier that it’s common, though you may think otherwise, given that it comes in different names.
Whenever you take this personal loan, you repay it in fixed instalments. Depending on your lender, you can pay a one-time processing fee of 0-to-10% of the loan, deducted upfront.
Banks can offer up to 10 times your monthly salary, but most licensed money lenders provide up to six times.
Banks also charge interest of between 3.7-7% per annum, but licensed money blenders charge up to 4% per month.
When it comes to the loan tenure, banks offer between one and seven years. However, money lenders are more flexible.
The maximum amount of personal loan you can borrow depends on the following:
The maximum depends on the type of personal loan you’ve chosen. Let’s say you prefer a credit line and are asking, “How much loan can I get from bank?” It’s two times your monthly income. For a debt consolidation plan, you can secure a loan amount equivalent to 18 times your monthly salary.
At the same time, you can get up to four times your monthly salary if you choose the balance of transfer and up to ten or six times if you choose a personal instalment loan.
Besides the type of personal loan, your annual income determines how much you can borrow.
How much can I loan from bank? Banks expect you to have an annual income of at least $30,000. Some offer personal loans to citizens and PRs who earn less than this at a higher interest rate.
If you are a foreigner, you can get the lowest interest rate personal loan in Singapore if you earn approximately $50,000 to $60,000 per year. Some banks will accept you if you earn $40,000 or slightly low, but be prepared to pay more interest.
Licensed money lenders also pay attention to your annual income. However, they are typically more flexible than banks.
Note: Other factors determining how much you can borrow are your credit score and compliance with government restrictions like the total debt servicing ratio.
When applying for a personal loan, ensure you can prove your eligibility. Your lender will likely decline the application if you meet all the qualifications but don’t have the right documents.
What do you need to apply for a personal loan? Some banks and money lenders have unique requirements, so ensure you find the documents required from your chosen lender before submitting your request.
Here is the list of essential documents that every licensed money lender and bank in Singapore requires:
Since your bank or financial institution needs your income level and salary details to determine the amount you are qualified to get, you require one or more of the following documents:
Your lender will want to confirm your legal status and eligibility. Here are the documents that can help you to prove this:
The lender will also need proof of your residential address. You can use one of the following:
Before applying for a loan, be sure you will get value for your money. Here are the factors you should consider to ensure to get the best personal loan:
Most lenders offer interest rates depending on the amount borrowed and credit score.
Compare different loans’ effective interest rates (EIR) carefully to determine the best one. Remember, EIR measures the cost of loans more accurately than the simple interest rate.
Consider whether the loan tenure suits you. Shorter loan tenure can mean lower interest rates because you pay more frequently. However, a longer tenure might suit you best if you want a more flexible repayment schedule.
Your lender can offer you up to ten times your monthly income after considering your relationship with it, your credit score, and your salary. Before accepting such an offer, evaluate your financial situation to determine whether you can meet the debt obligation.
Once you are sure that you qualify for a personal loan in Singapore, you can plan how you’ll use your money. But what do you need to apply for a personal loan? This is important because your lender will depend on it to process your application. Prepare the essential documents proving your eligibility and determine whether your lender requires more.
If you need the best personal loan in Singapore now, visit Katong Credit. We offer affordable products and have a quick approval process. You can apply for the loan now and get it within 24 hours. Contact us, and we’ll help you complete the application process fast.