What Exactly Is An Unsecured Loan? – Unsecured Loan vs Personal Loan

Turning to unsecured loans such as a personal loan in Singapore is one of the common ways to meet our financial needs - be it wedding events, purchase of a new home, emergency medical bills, car repairs, or a financial misstep. While some may pick unsecured loans to help with some of their expenses, others may choose secured loans instead.


So, what is the difference between unsecured loans and secured loans? And which one is better for you? To help you gain a better understanding, we've done a quick comparison of secured and unsecured personal loans in Singapore to help you decide on the right one.

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What Is An Unsecured Loan?

In Singapore, most of the personal loans available in the market are 'unsecured loans' which means that if you were to take on an unsecured loan from a bank, you wouldn’t need to provide a collateral to the bank. Some of the banks that provide personal loans in Singapore include OCBC, Standard Chartered, DBS, UOB etc. 


On the other hand, ‘secured loans’, as its name suggests, requires some sort of a highly valuable asset which can be secured and this asset will be known as the collateral that the lender can seize if you don't repay the loan.


How Does An Unsecured Loan Work?

If no collateral is required to take on an unsecured loan, on what basis do lenders approve borrowers to be eligible for this type of loan? Here are some key characteristics of an unsecured loan in Singapore and how the relationship between borrowers and lenders work in an unsecured loan.

​​Credit score requirements

Lenders or banks will typically evaluate your credit score as a borrower and your credit history when deciding whether to approve your unsecured loan application. If you have a good credit score, you are more likely to be approved for loans and may be eligible for lower interest rates.

Loan amount

Unsecured loans in Singapore typically offer lower loan amounts compared to secured loans, as lenders or banks are taking on more risk by lending money without collateral.

No collateral required

As mentioned, unsecured loans in Singapore do not require borrowers to pledge any collateral as security.

Higher interest rates

Due to the fact that unsecured loans are not backed by collateral, they are generally riskier for lenders, and therefore tend to come with higher interest rates than secured loans.

Fixed repayment period

Unsecured loans typically have a fixed repayment period, meaning that borrowers must repay the loan amount plus interest within a specific timeframe.

Use of funds

Unsecured loans in Singapore can be used for a variety of purposes, including debt consolidation, home renovation, travel, or other personal expenses.

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Unsecured Loans vs. Secured Loans

UnsecuredSecured
Interest rateHigherLower
Category of loansUsually for credit card bills, personal loans, and personal line of creditUsually for loans like home loans, car loans, education loans, renovation or business loans
Assets/CollateralsCash flowPhysical assets
Borrowing limitsUsually for smaller amounts ($100k or less)Usually for higher borrowing amounts than an unsecured loan
Approval timeMay often be faster than secured loans, as less upfront information is requiredMay take a longer approval process, as there’s value assessments of collaterals and additional proof and documentation of assets to be submitted for review

Types Of Unsecured Loans

Best forInterest rate*Maximum loan amount Tenure
Personal loan

One who prefers a term personal loan which has a fixed period of time that usually caters to long-term needs and offers lower interest rate.

From 3.88% p.a.

Up to 10 times of your monthly incomeUp to 5 years (Note that for revolving personal loans, there usually isn’t any penalty for early full repayment unlike a term personal loan.) You may refer to our blog article here to find more about the pros and cons of these two types of personal loans.
Line of creditBorrowers who are unsure of when they need the funds and prefer convenience with easy access to cash just for a short period of time i.e. a few months, as an alternative to credit cards.From 20.5% p.a.

Up to 10 times your monthly income (annual income >S$120,000)

Open-ended (negotiable)
Credit instalment planBorrowers who need to purchase big ticket items but cannot afford to pay full cash payment upfront0% p.a.(instalments must be paid on time)Dependent on purchases’ pricesUp to 24 months
Balance transferBorrowers looking to consolidate debts from other accounts or credit cards onto a single credit card or credit line at lower interest charges0% for 6 or 12 months (based on banks’ balance transfer promotions)Up to 90% - 95% of your credit line3 months to up to 12 months
Debt consolidation plans

*Only meant for credit card bills, personal loans, and personal line of credit. Borrowers must be Singaporean citizen or PR

From 3.98% p.a. (interest rate will usually be based on the calculation by the DCP issuing bank)Up to more than 12 times of your monthly income (sum of the total outstanding debts, plus outstanding interest, plus 5% on top of the total)Up to 10 years
*Interest rates above exclude EIR which is calculated based on the reducing outstanding amount over the tenure of the loan and takes into account the administration fees, assuming a monthly minimum payment of a certain percentage required by the lender/bank, plus interest, fees and charges and full payment in the final month of the tenure.

Best Unsecured Personal Loans in Singapore

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Standard Chartered CashOne

Interest Rate*
From 2.88%
Total Amount Payable
S$10,864
Processing Fee
S$0
Per Month
S$302

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Valid until 06 Mar 2024
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UOB Personal Loan

Interest Rate*
From 2.88%
Total Amount Payable
S$10,864
Processing Fee
0%
Per Month
S$302

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Valid until 06 Mar 2024
Interest Rate*
3.88%
Total Amount Payable
S$11,164
Processing Fee
S$100
Per Month
S$310
Interest Rate*
From 3.6%
Total Amount Payable
S$11,080
Processing Fee
S$0
Per Month
S$308

Frequently Asked Questions

Is there a difference between a term personal and a revolving personal loan?

Yes. Term personal loans involve a fixed period of time (longer loan tenure) that usually caters to long-term needs and the interest rate is lower. On the other hand, a revolving personal loan has a shorter loan tenure and is suitable for borrowers who can repay their personal loans as soon as possible, although the interest rates are much higher. The upside is that there usually isn’t any penalty for early full repayment unlike a term personal loan.

Where can I get the best personal loans by banks in Singapore?

Currently, Standard Chartered, UOB and HSBC are offering the best interest rates and personal loan promotions in Singapore. To make a better comparison based on loan repayment tenures, effective interest rates (EIR) and minimum annual income requirements, you may use tools such as MoneySmart's comparison tool to help you out.

Are unsecured loans better than secured loans?

The most important difference is that unsecured loans need borrowers to pledge some form of collateral/assets as security while secured loans do not require that. Moreover, unsecured loans are usually for smaller loan amounts while secured loans are meant for higher borrowing amounts.

Can I use a debt consolidation plan for my home loan and car loan?

A debt consolidation plan (DCP) is a repayment scheme that helps combine all the outstanding unsecured debt (including those from different banks) into one single loan with one bank. However, this plan is only meant for credit card bills, personal loans, and personal line of credit, meaning that any secured loans like home loans, car loans, education loans, renovation or business loans cannot be included in a DCP.

What is EIR and must I pay an EIR for my personal loan?

An EIR, or effective interest rate, reflects the true cost of taking a loan in Singapore. When you take a personal loan from a bank, there are often other costs in addition to the base interest rate, such as the administration fee that a bank may charge. So, yes you need to pay an EIR for your personal loans; the EIR (effective interest rate) is much more complicated as it also takes into account any processing fees plus your repayment schedule.