What is a personal loan?

Popular for the wide variety of needs they can meet. Learn more about them.

A personal loan is a contract signed between the client (called the borrower) and the bank (the lender), in which a specific amount of money is provided in exchange for its repayment within an agreed period and with the payment of the corresponding interest (installments).

We can say that this is the classic definition of a personal loan.

The client doesn't usually commit to a specific asset —such as a home—so processing is faster than with a mortgage loan.

Rather, we can say that the collateral for a personal loan is based on the borrower's present and future assets.

Personal loan Singapore interest rates vary and are typically used to purchase consumer goods and services, such as a car, a computer, studying abroad, a vacation, or a specific product that may involve a large sum.

While other types of loans (such as mortgages) can offer installments of up to 20 years, personal loans typically have a lower amount that can be paid in a relatively short period of time.

The shorter repayment period for personal loans also makes them more expensive, as banks take a greater risk than owning a home as a "recourse" in case of default.

What are the requirements for accessing a personal loan?

Banks—as lenders—are required to impose a series of requirements when granting a personal loan to ensure repayment by the borrower.

The first step to access this service is to be of legal age or, if under 18, to have express authorization from your parents or guardians.

Although each bank reserves a series of measures when granting a personal loan, as a general rule, the borrower must have a favorable credit history to avoid possible defaults or late payments.

For this reason, even if you are of legal age, a personal loan will not be granted unless it is verified that the client can actually guarantee financial solvency.

Likewise, the opposite can happen: a client may be elderly but lack a job or assets to secure the loan amount they wish to request from the bank.

What should be done in these cases? To resolve these difficulties, it's possible to hire a guarantor (i.e., a third party who agrees to repay the debt in the event of default).

The guarantor must demonstrate a solid credit history for the personal loan to be approved.

Documentation required to apply for a personal loan Singapore

As we've already mentioned throughout this post, you'll need to provide proof of financial solvency to the bank to guarantee repayment of the loan.

To do so, our bank will request the following documentation to be presented:

Valid DNI or NIE.

Employment contract with simple copy.

Deed of the property or rental agreement.

Receipts for the borrower's home payments, such as water, gas, telephone, or internet.

A detailed estimate (or invoice) of the product or service for which the loan is being requested to justify its value.

Proof of income, such as recent months' pay stubs or VAT returns, plus Social Security contributions for self-employed workers.

If you have recently applied for another loan, proof of payment for that loan will need to be submitted.

In order to guarantee repayment of the loan, the bank is also entitled to request a list of the borrower's assets. This must include a home (or homes), commercial premises, cars, bank accounts, or any other investments in which we are involved.

The greater the debtor's assets, the easier it will be for the bank to obtain a best personal loan Singapore from them, as this guarantees repayment and amortization and can lead to greater contractual benefits

Tymur Levitin - Teacher of the Department of Translation. Professional certified translator with experience in translating and teaching English and German.