Types of Loans: Find the Right Fit for You in 2024

First, we should understand that a loan is the amount of money borrowed with the expectation of returning over a given period of time, usually with interests. They are typically fixed amounts, e.g. $10,000 or $15,000. There are many types of loans. Users should understand what types suit them, so they find it easy to use and return the money on time. In Singapore, different loans cater to various financial needs. Here’s an in-depth look at each types of loans in Singapore.

Types of Loans:

1.    Personal Loan

These are unsecured loans often used for personal expenses such as medical bills, weddings or large purchases. They offer flexible terms and the amount you can borrow depends on your income and credit score. Personal loans have interest rates ranging from 3% to 10% annually, depending on your creditworthiness, loan tenure and provider. Loan tenure typically lasts between one and seven years and repayment terms can be tailored to your budget. Personal loans do not require collateral but can incur significant penalties if not repaid on time.

2.    Payday Loan

Short-term, small-amount loans designed to help cover urgent expenses until your next payday. These loans are typically due in 30 days or less. Payday loans usually come with very high interest rates (sometimes exceeding 1% per day), making them suitable only for emergency use. Borrowers are advised to only take this loan type if they are certain they can repay it quickly, as it can lead to a debt cycle.

3.    Home Loan

Whether you are purchasing a private property, an HDB flat or refinancing an existing mortgage, home loans are secured against the property. Singapore offers both fixed and floating rate home loans, with tenures up to 35 years. Floating rates are linked to benchmarks like SIBOR or SORA, whereas fixed rates are locked in for a period. Interest rates generally range from 1.5% to 2.5%, depending on the bank or lender. Down payments and loan-to-value (LTV) limits are essential considerations.

4.     Debt Consolidation Loan

Designed for borrowers with multiple high-interest debts, debt consolidation loans combine them into one manageable loan with a lower interest rate and a single monthly payment. These loans can significantly reduce your interest burden and simplify repayments. Tenures can extend up to ten years and interest rates typically range from 4% to 7%.

5.    Car Loan

Used to finance the purchase of vehicles, car loans in Singapore typically cover up to 70% of the car’s value (or 60% for higher-value vehicles). These loans have tenures of five to seven years and interest rates between 2% and 3% annually. Borrowers can also opt for balloon payment schemes where a lump sum is due at the end of the loan period. Lenders will assess your credit score, income and debt levels before granting approval.

6.    Education Loan

Education loans which are one of the types of loans that cover tuition fees and other related academic expenses. These loans typically have favorable interest rates (3% to 5%) with flexible repayment terms that can start after graduation. Parents can apply on behalf of students and the tenure usually extends up to ten years, depending on the loan provider. Education loans can be used for both local and overseas studies.

7.    Business Loan

Entrepreneurs or small businesses can apply for business loans to help fund expansion, equipment purchases or operational costs. Business loans in Singapore come in various forms, such as working capital loans, trade financing and startup loans. Interest rates can range from 3.5% to 7.5% annually, with loan amounts depending on the business’s performance and profitability. Some loans may require collateral, such as property or equipment, while others may be unsecured.

8.    Renovation Loan

These are specific personal loans meant for home improvements or renovations. They offer lower interest rates (2.88% to 4%) compared to general personal loans. Loan amounts are typically capped at around six times your monthly income or up to $30,000. Tenures range from one to five years, depending on the lender.

 

What is the difference between secured and unsecured loans?

The key difference between secured and unsecured loans is whether collateral is required. Secured loans require borrowers to provide an asset, such as a house or car as collateral. This lowers the risk for the lender, allowing them to offer lower interest rates. Common examples of secured loans include mortgages and car loans, where the lender can claim the asset if the borrower fails to repay.

In contrast, unsecured loans do not require any collateral and lenders base their approval on the borrower’s creditworthiness. Since there’s no asset to secure the loan, unsecured loans typically come with higher interest rates. Examples of unsecured loans include personal loans, credit card debt and student loans which are also include as types of loans.

If you have borrowed from a licensed moneylender before, do let us know your experience with them!