Monthly Archives: May 2025

Loans, when used wisely, can be valuable tools for managing your finances. While secured loans like mortgages and car financing require you to pledge an asset, unsecured loans provide you with greater flexibility—without putting your assets on the line.

In this guide, we’ll walk through what unsecured loans are, the types commonly available in Singapore, and how to use them responsibly. Whether you need funds for a big event, an emergency, or debt consolidation, understanding your options can help you avoid costly mistakes.

What Are Unsecured Loans?

Unsecured loans are loans issued without requiring any form of collateral. This means you don’t have to pledge your house, car, or any other asset to obtain the loan. Because there’s no security backing the loan, banks assess your creditworthiness based on your income, employment history, and credit score.

As these loans carry more risk for lenders, the interest rates are generally higher than those of secured loans. However, they also tend to have quicker approval times and less paperwork.

Why Do People Use Unsecured Loans?

People take unsecured loans for a variety of reasons:

• Emergency expenses such as medical bills or urgent home repairs

   

• Debt repayment, especially consolidating high-interest debts

   

• Major purchases like weddings, renovations, or education

   

• Cash flow support, especially for freelancers or commission-based earners

   

When used properly, an unsecured loan can give you the breathing room you need without disrupting your long-term savings or investments.

How Do They Work?

Unsecured loans usually fall into two main categories:

1. Term loans – Fixed loan amount disbursed upfront, repaid over a set tenure with fixed monthly instalments.

    

2. Revolving credit – You get a credit limit and draw only what you need. Interest applies only on the amount used, and the credit replenishes as you repay.

    

Loan approvals and interest rates vary depending on your credit score, annual income, and existing liabilities. The Monetary Authority of Singapore (MAS) restricts total unsecured borrowing to 12 times your monthly income across all financial institutions.

5 Common Types of Unsecured Loans in Singapore

Here’s a look at the most common unsecured loan products in Singapore, along with how they work and when to consider them.

1. Personal Loans

A personal loan is a fixed-term loan with a lump-sum disbursement. You can use it for almost anything — from a family vacation to elective surgery or even starting a small business.

Most banks in Singapore offer personal loans to Singaporeans and PRs earning at least $20,000 to $30,000 annually, with loan amounts of 2 to 6 times your monthly income. Tenures range from 1 to 5 years, and interest rates typically fall between 3.5% and 9% per annum.

Some banks offer promotional rates as low as 2.8% p.a., while others may charge effective interest rates (EIR) above 7% once you include processing fees.

📝 Use this if: You need a lump sum for a planned expense and can commit to regular repayments over a fixed period.

2. Credit Card Instalment Plans

If you’ve already made a large purchase on your credit card, you may be able to convert it into monthly instalments. These plans are often offered at 0% interest for tenures ranging from 3 to 24 months, but do include processing fees of around 2% to 6% depending on the bank.

Some banks also offer pre-approved instalment options at the point of purchase through participating merchants. However, choosing an instalment plan may disqualify the purchase from earning reward points or miles.

📝 Use this if: You’ve charged a big-ticket item and want to spread the payments without incurring high interest charges.

3. Line of Credit

A line of credit is like a flexible personal loan. You’re approved for a maximum limit (say, $30,000) and you can borrow as needed. You only pay interest on the amount you’ve used — usually around 18% to 22% per annum — and you can repay it anytime.

This is ideal for people with irregular incomes or those who face occasional short-term cash flow gaps. It offers high flexibility but requires discipline, as the interest compounds quickly if left unpaid.

📝 Use this if: You’re self-employed or need a standby emergency fund with easy access to cash.

4. Balance Transfer

A balance transfer allows you to move your outstanding credit card debts or personal loan balances from one bank to another at 0% interest for a limited period — typically 3, 6, or 12 months.

You’ll usually be charged a one-time processing fee of 1.5% to 5%, and any unpaid balances after the promotional period will be charged standard interest rates (around 20% to 26% p.a.).

Major banks in Singapore like OCBC, UOB, Standard Chartered, and HSBC offer balance transfer promotions from time to time, so it’s worth comparing options.

📝 Use this if: You have high-interest debts and want to save on interest while repaying them over a short period.

5. Debt Consolidation Plan (DCP)

For those struggling with multiple unsecured loans, the Debt Consolidation Plan (DCP) combines all your outstanding debts into one single loan with a lower interest rate and fixed repayment schedule.

DCPs are only available to individuals who owe more than 12 times their monthly income and are not self-employed. Interest rates generally range from 3.5% to 6.5% p.a., and loan tenures can stretch up to 8 years.

Participating banks include UOB, HSBC, CIMB, Maybank, Citibank, and Standard Chartered. Each will pay off your existing unsecured debts, and you will make just one monthly repayment to your DCP provider.

📝 Use this if: You have serious debt across multiple banks and need a clear path to becoming debt-free.

Choosing the Right Option for You

With so many loan products available, it’s easy to feel overwhelmed. Start by asking:

• What is the purpose of this loan?

   

• Do I need the money all at once or in parts?

   

• Can I comfortably afford the repayments?

   

• Am I using this loan to manage debt or to spend more?

   

Here’s a quick guide to help: