There are two types of loan which is secured and unsecured. Secured loans involve assets like car, house, or land. The borrower pledges some asset that will serve as their collateral for secured loans. Collateral is anything with tangible value to the borrower. The borrower has an option to seize his pledged assets which is the collateral if he can no longer make payments for his loan. Therefore, secured loans tend to have lower interest rate compare to unsecured loan because the borrower of a secured loan has a pledged asset for back up. The benefit of secured loan is it has lesser repayment amount and can be divided over a longer tenure. Secured loans are also easier to obtain even to those borrowers without a good credit history.
Meanwhile, unsecured loan does not involve fixed asset for collateral. Unsecured loan has the higher risk for the bank, and what they do to offset the possibility is they tend to charge the higher interest rate. Unlike on secured loan, if the borrower failed to pay his debt, the lender or the bank can take his asset; for unsecured loan, if the borrower was unable to pay, it can cause long-term consequences that can have negative impact on the borrower's life. Failure to pay of the borrower can ruin credit score and prevent him to getting other loans or credit card in the future.
There are different kinds of unsecured loan in Singapore, and personal loan falls under this category. Personal loan is the most common type of unsecured loan. How it works is very straightforward. Personal loan is one of the descent methods to solve an emergency need for a significant amount of money when your savings is not enough. The borrower will get a one-time disbursement of the money he desires to borrow, and the bank or moneylender will require a repayment amount of monthly installments including the interest rate charge. Applying for personal loan does not involve collateral which secures the borrower's asset. Unsecured loan in Singapore can help the borrower to get a large sum of money for a sudden need.
There is a certain length of time needed to pay a personal loan in Singapore can be as short as one year up to 7 years long. The higher the period, the lower the monthly payment. It is more recommendable to go to the bank because they have lower interest rate compared to moneylender. Given that personal loan in Singapore is unsecured, and personal loan has higher interest rate, the target here is to look for a lower interest rate for convenience. For the best personal loan rate in Singapore, one must consider fixed interest rate and period for repayment. Before applying for a personal loan, it is better to know compare those categories from bank to moneylenders.
Hence, personal loan in Singapore is multi-purpose. As mentioned above, it is a useful method during urgent need of a large amount of money and savings is not enough. Personal loan in Singapore is unsecured thus it is more friendly to the borrower if he does not have any asset at the moment.