So you plan to borrow money from a bank or a licensed money lender in Singapore, right? Wait a minute, please.
Before submitting your application, make sure you can answer the following question: What do you need to apply for a personal loan?
In the next five minutes, you’ll know all the answers.
Let’s begin with some important definitions.
What Is A Personal Loan And How Does It Work?
When you apply for a loan without offering any collateral in exchange, you call this a personal loan.
Personal loans are unsecured, meaning they are not backed by an asset such as a house. If you fail to pay off your debt, the lender has no right to seize your possessions.
So if you can fail to repay a debt without losing any assets, how does that even work?
How Does A Personal Loan Application Work?
As you answer the question, “What do you need to apply for a personal loan in Singapore?” You need to understand what follows.
As you take out a personal loan, you must pay interest and any other applicable charges your lender requires. Most personal loans come with fixed interest rates and fixed repayment periods.
This means you’ll need to pay off your loan and interest in regular installments, spread out over a number of months or years.
Personal loans usually come with full amortisation, which means each payment includes both interest and principal repayment. This is especially helpful since there’s no balloon payment at the end of the loan term.
Though you just learned how personal loans work in Singapore, this covers the general process. Yet, a couple of different personal loan types exist in Singapore with distinctive features.
Let’s find out what they are.
Types Of Personal Loans In Singapore
Before applying for a loan in Singapore, you should know your options. There are various personal loan options available to you, depending on your needs.
Let’s see four types of personal loans you can get in Singapore.
Balance Transfer Personal Loan
This type of personal loan enables you to transfer all your existing debts, such as credit card bills, to one central location (into a single payment). It allows you to keep track of your finances and make a fixed monthly payment that fits your budget.
This is best for a personal loan when you want to manage your debts.
Credit Line Personal Loan
A credit line (also known as a revolving line of credit) is like a personal fountain of funds. This is because it’s available to you at any time, allowing you to withdraw funds when you want.
The size of your paycheck typically limits the maximum sum you can draw from your line of credit.
Debt Consolidation Plan
This debt refinancing programme gives you the option to combine all your unsecured loans from different financial institutions into one.
However, certain types of personal loans are not eligible for this program. These are some examples:
- Joint accounts
- Renovation loans
- Education loans
- Medical loans
- Credit facilities (granted for company and business purposes)
Personal Installment Loan
In Singapore, this is the most common type of personal loan.
The loan gives you a lump sum of money in your hands, and you pay it off in portions (weekly, monthly, or according to whatever schedule you set) until the full amount is paid.
It can be used for a variety of purposes, granting a large sum of money up front.
Now, what about the amount of money you can take out as a loan in Singapore? Generally, the amount of money you can borrow depends on your annual income.
Let’s go to the details below.
How Much Can You Borrow?
Banks in Singapore usually require you to have a minimum annual income of $30,000 to be able to apply for a personal loan. If you are a foreigner, your annual income must be between $40,000 and $60,000.
However, some may offer personal loans even if you make less than this amount, but with a higher interest rate.
That is, you may take out a personal loan in Singapore even if you make less than S$30,000 each year. Yet, expect to pay a higher rate of interest.
A significant situation arises when you are answering the question, “How much bank loan can I get?” The situation is that, as your income increases, so does your borrowing limit.
You can borrow up to $3,000 if your annual income is between $10,000 and $20,000. Yet, when your annual income surpasses $20,000, you can borrow up to six times your monthly salary.
Also, a question arises when you ask yourself, “How much of a loan can I get from a bank in Singapore?”
The question is, do you want to apply for the loan as a Singapore citizen (or permanent resident) or as a foreigner?
You can borrow up to $3,000 if you are a Singapore citizen or permanent resident with an annual income of less than $10,000.
Similarly, if you are a foreigner living in Singapore and fall into the same income bracket, the most you can borrow is $500.
So the main question remains, what do you need to apply for a personal loan in Singapore?
Some documents providing information on your income and employment status will help your application. But there’s more. Let’s take a look at them.
What Documents Do You Need To Apply For A Loan?
The documents can vary depending on the bank or lender you select.
Yet, normally, the following three documents are essential:
1. Proof Of Income
This enables the banks to understand the details of your salary and income level.
Some of the specific documents you need to submit to banks in Singapore to constitute proof of your income may include:
- You should consider submitting your Central Provident Fund (CPF) contribution statement (especially for a CPF personal loan),
- Your most recent income tax Notice of Assessment,
- Your most recent computerised payslip,
- A bank statement showing your salary deposit into your account,
- Any other income statements that may be required.
2. Proof Of Identity (ID Copy)
When you apply for a personal loan, a lender usually needs to identify you.
To confirm your eligibility and legal status, a lender will likely request your Singapore Identification Card (IC).
You should also think about documents showing your residential address (utility bills).
3. Employment Information
Documents like your employment contract or job offer letter and even your employment pass card are what you will need here.
You are almost done when it comes to applying for a loan in Singapore. Yet, other key elements should be on your mind. Let’s see some of them below.
What To Consider Before Applying A Loan
Here are four top elements to keep in mind before applying for a loan:
The crucial question, “What do you need to apply for a personal loan?” needs the right answers. One of the answers you should consider first is the loan amount.
As a matter of fact, knowing the appropriate loan amount should be the most important element before you think of applying for a loan.
Then you can move on to the next. The interest rate.
What’s The Interest Rate?
When applying for a personal loan in Singapore, be sure to consider two terms:
The Applied Rate (AR) and the Effective Interest Rate (EIR).
By comparing the EIR given the same loan amount and term, you will better understand the true cost of borrowing.
Timing is important when you want to take out a loan in Singapore. This is because it can hurt your credit score.
The loan repayment period is important in determining how much time you have between monthly payments.
The ideal situation is to plan how you will repay your personal loans. This will prevent you from paying late fees and accumulating unwanted debt.
Fees And Charges
Be sure to check for any other potential hidden fees, which will add to your total loan amount. Banks and money lenders typically charge processing fees for processing loan applications.
Some fees that will result in other costs to be aware of are:
- Annual charges: Some banks charge a fixed annual fee besides the interest you must pay. A five-year loan could result in five annual fees.
- Penalties for late payments.
- Change in tenure fee: Not all banks provide this flexibility. It would be helpful if you could extend the repayment period for a fee.
Other factors to consider before applying for a loan are:
- When will you receive the funds?
- How trustworthy is the lender?
- Is the early repayment fee reasonable?
- Bear in mind that your credit card limit might be affected.
The Bottom Line
It can be quite overwhelming trying to answer the question, “What do you need to apply for a personal loan in Singapore?”.
That’s why the elements above should be on your check list. This will help you apply for the best personal loan in Singapore.
At U Credit we believe in assisting you by making credit more accessible, especially to those who don’t meet the banking criteria to get a personal.
As one of the top licensed money lenders in Singapore, we offer convenient loan terms tailored to your repayment capacity. Apply for a loan anytime.