Borrowing money can be a strain for anyone.
There are many options available and the terminology can be confusing or overwhelming to many.
In Singapore there are several notable option for borrowing money and can be divided into two categories; traditional lenders and non-traditional.
Traditional lenders are regulated banks. These are brick and mortar establishments that are licensed and governed in with strict protocols both internally and externally. Borrowing money from a traditional banking source is a straight forward process. They check your credit, income and analyze your debt to income ratio to determine if you have sufficient income to repay all of your debts plus this additional debt.
Unfortunately the process is often slow and cumbersome often taking weeks, especially when it involves complex funding such as real estate or business loans. It is rare that a bank offers an unsecured loan. They almost always require collateral sufficient to cover the debt if you default. This is one reason the loans take so long to process as they often attach liens to homes, cars and other objects.
Traditional lenders are also quite strict with credit history.
If you have had late payments or defaulted on a loan they may reject you based on your credit history alone. Insufficient collateral is another reason for rejection. This often forces people to look to borrow from non-traditional lenders.
A non-traditional lender is not regulated as heavily as traditional lenders. An effort has been made in the last decade to regulate non-traditional lenders especially in light of abusive lending practices. Singapore has instituted a licensing program governed by the Registrar of Money Lenders to regulate non-traditional lenders.
These non-traditional money lenders offer financing to those who don’t qualify with traditional banks for credit or income reasons. One of the most popular is Payday loans where you assign you next paycheck as a loose form of collateral in exchange for a small loan. While these loans are viable they come with great expense in both fees and interest rates.
On average in Singapore these loans are given at 25-30% interest. The catch is people don’t understand compounding interest and the true meaning of Annual Percentage Rate (APR) therefore are surprised to learn they can wind up paying into the 1000 percentile on Payday loans especially if the payment is not made on time.
There are non-traditional lenders who offer personal loans with similar terms as Payday loans except with more flexibility in repayment. Both of these non-traditional lenders don’t require collateral. They will accept people with no or poor credit but the interest rates will be significantly higher to mitigate their risk. The upside of these loans is they are done very quickly and great for emergency situations.
Often times the funds are in your hands in less than 24 hours.
Borrowing money in Singapore is possible both via traditional banks and non-traditional credit companies. Traditional lending is stricter and takes more time while non-traditional is quick, with little hassle but only in small amounts and at extremely expensive interest rates.