Contributed by Credit Bureau (Singapore)
Most people tend to shy away from taking up credit facilities as they do not have much knowledge about it. If you are one of them, this article contains everything you need to know about the various types of commonly used credit facilities offered in Singapore. You will be able to make better informed decisions on credit-related matters should you choose to take up loans with the banks and major financial institutions.
Credit facilities are various types of loans made in a business or corporate finance context. They are specific types of credit facilities such as revolving credit, term loans, secured and unsecured loans and retail accounts. These will be reflected in your credit report – which provides a snapshot of your creditworthiness by detailing your credit history and repayment behaviour from various credit providers.
With this introduction of credit, you have the financial power and ability to act on major big ticket purchases and life opportunities that you may require.
Some of the commonly used credit facilities in Singapore today are as below;
1. Credit Card
With a good credit history and steady income, you may qualify for credit cards at the bank. The card issuer will usually assess your repayment ability before deciding whether to accept your application and what credit limit to be set. Also, your credit card can be used to purchase items in most places. Different credit cards have different interest rates for different types of activities, like purchases, cash advances or balance transfers, so do remember to read the fine print.
2. Personal Loan
Personal loans are mostly unsecured in nature. They do not require a collateral such as a car or house in order for a loan to be extended to you. Their unsecured nature makes personal loans attractive to those who require finances to meet short term personal and business needs.
3. Bridging Loan
If you do need assistance on the initial cash down payment of your property purchase, a Bridging Loan can be extended to you while you are still in the process of selling your HDB flat or private property.
You can borrow up to 15% of the purchase price or fair market value (whichever is lower) at 6.5% p.a. (1% above prime rate*) and the maximum tenor of the Bridging Loan is six months.
During the tenor of the loan, you can choose to service the interest only and repay the principal amount once you receive the cash proceeds from the sale of your existing property.
4. Motor Vehicle Loan
The bank supplies a definite sum of money, intended for the purchase of a suitable vehicle, to an individual who qualifies against a list of requirements that establish the said individual’s financial history and repaying capacity. Car loans in Singapore can be deemed as secured loans that involve the purchased vehicle as the collateral. The process of acquiring a car loan in Singapore is easy enough, and it majorly depends on your compliance with the minimum age requirement, nationality, gross family income, clean credit history and employment stability that equates to a dependable source of income.
5. Bank Overdraft
Overdrafts are an extension of credit from a bank when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. You can arrange a bank overdraft on the account your salary is paid into. This means your account can be overdrawn. The interest rate is much higher than the prime interest rate. You do not have to repay the overdraft within a fixed time, but the bank will review it at least once a year, and choose to withdraw it at any point of time.
6. Restructured Loan
Restructured loans are overdue loans where a bank has negotiated for a change in repayment terms with the borrower and payments are still being made in accordance with the repayment terms.
7. HDB Loan
HDB loans are offered by HDB or the banks and they provide tenures of up to 25 years if you pay a minimum 20% down payment (at least 5% in cash), and use your CPF to pay off 15% or more for the balance down payment depending on the loan amount that you want. You will have the option to extend your loan tenure to 30 years if you are going for a 60% loan or less (capped at age 70). These loans are well suited for individuals who can afford to place a large down payment and take a smaller home loan.
8. Renovation Loan
Purchasing a house is one of the most important financial decisions you will ever take in your life. Everyone deserves to live in a home of their choice, complete with the furnishings and appliances they would want. Renovation loans help home owners renovate their new homes, be it to make repairs to the roof, plumbing, walls, paint, and fixtures.
9. Education Loan
If you are planning to study locally or overseas, there are various flexible study loans offered by banks and financial institutions to finance your studies. With an education loan, you can finance your tuition fees, focus on studying and do better in the classroom.
10. Medical Loan
Medical loans are available to help ease the financial stress away and offer you peace of mind. They will ensure your family member gets the medical care they require, while the loan takes care of the ensuing medical bill. The loans are structured according to your financial situation and repayment ability regardless of the medical emergency.