Hand in hand with modernization comes excessive wants, inflation, and an increased cost of living. Education costs and housing costs are sky-high. It is impossible for an average salaried person to acquire these things without taking out a massive loan. There are two sources for taking out a loan in Singapore. You can either take out a personal loan from the bank or go to a registered money lender for a private loan. Both of these are excellent alternatives and can cater to your needs.
But you cannot take out a loan of a large sum of money if you cannot afford to pay it back. To make sure that you are eventually able to pay it back, the Monetary Authority of Singapore has levied a limit. The amount you can take out for a loan is currently capped at 12 times your monthly income. This ensures that you don’t over-borrow. Over borrowing can cause financial disturbances, like accumulation of interest, which can disrupt the economy. How much can a personal loan be? There are different kinds of loans to suit different purposes. All of these loans have varying limits depending upon your income.
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If you are planning on buying a house, the amount you can take out as a loan depends on what kind of house you are planning to purchase. If you are taking the Housing and Development Board concessionary loan, you can borrow up to 90% of either the flat’s selling price or its value. The loans are only available for the Housing and Development Board flats, excluding executive condominiums.
On the other hand, personal loans from banks are capped off at 75% of the selling price. These loans can be used to purchase Housing and Development Board flats, executive condominiums, or private property. There are three particulars to be considered while buying a house, valuation, selling price, and cash overvalue. The cash overvalue must be paid in cash while purchasing the house. HDB loans cover 90% of the rest, and private banks’ personal loans cover 75% of the rest.
Limits on car loans are based on the open market value of each particular vehicle. For cars with an open market value of less than twenty thousand Singaporean dollars, the maximum loan provided is 70% of the value. For cars with an open market value greater than that, the maximum loanable amount is 60% of the car’s value. The total price of the vehicle includes all costs like the Certificate of Entitlement and tax. The residual after taking a loan needs to be paid as a down payment. Car loans have tenure of a maximum of 7 years. Within seven years, all car loans should be repaid.
Unsecured loans are loans that don’t require collateral. This essentially means that if you fail to repay the loan or if you declare bankruptcy, the bank has nothing to seize or to foreclose on. Unsecured loans can be of various categories, like loans taken out using credit cards, credit lines, personal loans, home loans, car loans, and renovation and furnishing loans.
Credit card loans or the bank’s credit lines are usually capped off at two or four times an individual’s monthly income. But this primarily depends on the underlying guidelines and policy of your bank. The total amount you can borrow across all credit cards, credit lines, and personal loans has been limited to 12 times your monthly income. If you try to borrow any amount beyond that, your request will be automatically declined. Moreover, credit card loans and credit lines charge a very high-interest rate if the loaned amount is not returned within a short time span. So taking it is advisable not to take out credit card loans unless you are sure you will be able to repay them on time.
Renovation and furnishing loans
If you need to get significant upgrades to your house, taking a renovation is loan is a great way out. Renovation and furnishing loans usually have a limit of 6 times your monthly salary or thirty thousand Singaporean dollars, whichever is lower. Renovation and furnishing loans are two different loan plans. Furnishing loans are for buying a bed, sofa, curtains, and table, among other things. The renovation and furnishing loans typically have loan tenure of 5 years. So you can take out one furnishing and one renovation loan at the same time.
Apart from varying types of loans, the amount at which your loan is capped is also dependant on your credit score, your income, any existing debt. With a higher credit score and income, your credibility increases, so the amount banks are willing to loan out to you also increases. But without a high credit score, you might have to face difficulties acquiring a loan from a bank. In that case, your best alternative is to go to a licensed money lender.
The legal money lender interest rate is capped at 4%. Although with money lenders, interest rates are fixed and negotiable, unlike banks. Therefore no licensed money lender can exploit you and charge interest higher than that. But even with money lenders, there is a limit to how much you can borrow. While borrowing from a moneylender, you can either provide sufficient collateral against your loan or provide them with proof of income. When you take out a loan against your income, the maximum amount of money you can borrow is limited to six times your monthly income. This is done to prevent over-borrowing among the citizens, which causes a lot of financial difficulties.
To Sum It Up
Even though taking out a loan is becoming increasingly more accessible, you must consider all your feasible options before taking out a loan. All banks and money lenders charge varying interest rates and provide different repayment periods. It is crucial to compare each plan’s pros and cons and choose the alternative which is best suited for you and your lifestyle.