Why An Unsecured Loan Is The Best Loan For You


Unsecured loans are increasingly popular in Singapore, with a significant rise in applications among young adults. Recent data from the Singapore Credit Center shows a 96.75% increase in overdrafts and a 65% increase in personal loans from Q1 to Q2 2023. 

Notably, those aged 21-29 are using more unsecured credit, with a 2.53% increase in credit card usage and a 10.64% increase in personal loans. This trend highlights the growing financial risks for Singapore’s youth. 

Learn how unsecured loans work and who can benefit from them, helping you make informed decisions in your financial journey.

What is an Unsecured Loan?

Unsecured loans are financial products that don’t require borrowers to put up any collateral, such as a house or car. This makes them accessible to a broader range of individuals, particularly those who may not have significant assets to secure a loan. 

Common examples of unsecured loans include personal loans, student loans, and unsecured credit cards. These loans are available from various lenders, including traditional banks, online platforms, and government-backed institutions. 

The application process for unsecured loans is generally more straightforward than for secured loans, making them an attractive option for those seeking quick financial assistance.

However, do note that when you don’t provide collateral to the lender, the lender will be susceptible to more risks of delayed payment or the borrower not paying back the money. As such, the lender may charge the borrower with higher interest rates or will require the borrower to have a really good credit score in order for the loan to be approved.

Who is it for?

Unsecured loans are suitable for individuals who may not have collateral to offer as security for a loan or prefer not to risk their assets. These loans cater to a broad audience, including:

  • Individuals with Strong Credit Scores: Those with high credit ratings often qualify for better terms and interest rates, as lenders view them as lower-risk borrowers.
  • Young Professionals or Those Building Credit: Young adults or individuals looking to build or improve their credit history can benefit from unsecured loans, especially if they responsibly manage their repayments.
  • People in Need of Quick Funds: Unsecured loans can be processed faster than secured loans since they don’t require asset evaluation. They’re ideal for those needing emergency funds or short-term financing.
  • Borrowers Seeking Smaller Loan Amounts: Since these loans are riskier for lenders, they’re typically for smaller amounts, making them a good option for covering immediate expenses like minor home repairs, unexpected bills, or consolidating credit card debt.

Advantages and Disadvantages of Unsecured Loans


  • No Collateral Required: One of the most appealing aspects of unsecured loans is that they do not require any collateral. This means you don’t have to risk losing a valuable asset, such as your home or car, if you’re unable to repay the loan.
  • Simpler Application Process: Applying for an unsecured loan is often quicker and less complicated than for a secured loan, as there’s no need to evaluate and appraise collateral.
  • Flexible Usage: Unsecured loans can be used for a wide range of purposes, from consolidating debt to financing a vacation or a wedding.
  • Quicker Approval: Since there’s no collateral to assess, the approval process for unsecured loans can be faster, providing you with the funds you need more promptly.


  • Higher Interest Rates: To offset the increased risk of not having collateral, lenders typically charge higher interest rates on unsecured loans compared to secured loans.
  • Stricter Credit Requirements: Your credit history and score play a significant role in your eligibility for an unsecured loan. 
  • Lower Loan Amounts: The amount you can borrow with an unsecured loan is generally lower than with a secured loan, as it’s solely based on your creditworthiness and ability to repay.
  • Potential Impact on Credit Score: Failure to repay an unsecured loan can have a negative impact on your credit score, making it more challenging to obtain credit in the future.

Secured Loans vs Unsecured Loans

In a nutshell, secured loans require collateral, offering lower rates and larger amounts. Unsecured loans, without collateral, have higher rates, simpler processes, stricter credit requirements, and lower amounts, with no asset seizure upon failure to repay.

Here is a quick comparison between secured and unsecured loans:

AspectUnsecured LoansSecured Loans
CollateralNot requiredRequired (e.g., property, vehicle)
Interest RatesTypically higher due to the increased risk to the lenderGenerally lower as there is less risk
Application ProcessOften simpler and fasterMay be more complex due to the valuation of collateral
Credit RequirementsStricter, as noted by Bankrate, due to the lack of collateralMay be more lenient as the loan is secured
Loan AmountOften lower compared to secured loansCan be higher, depending on the value of the collateral
Failure to Repay?Banks or other financial institutions can’t seize your assetsBanks or other financial institutions may be able to seize your assets

Types of unsecured loans

1. Personal Loans: Best for Financing Large Purchases with Fixed Repayment Terms

Unsecured personal loans are a type of loan that the borrower would use for any kind of personal reasons such as to pay for emergency situations, medical bills, or even to make large purchases. 

A personal loan is a sum of money that you borrow from financial institutions such as banks, credit unions, or any licensed moneylenders. Once you have borrowed the money, you are required to pay in fixed monthly installments with an interest set by the financial 



  • Personal Loan Interest Rates: Starts at 3.88% p.a.
  • Loan Amount: Up to 10x your monthly income
  • Loan Tenure: Up to 5 years

Here’s an example:

With the DBS Personal Loan, you have the opportunity to secure a loan amounting to as much as 10x your monthly income. This loan comes with a stable interest rate starting at 3.88% per annum, alongside a 1% processing charge. Taking these into account, the total effective interest rate (EIR) comes to 7.56% annually. 

Furthermore, you can choose a repayment period ranging from six months up to five years, offering flexibility based on your financial situation and needs.

2. Student Loans: Best for Covering Tuition or Education-Related Expenses

Student loans are also a type of unsecured loan. This type of loan is available through the government or any private student loan whereby the money is used to pay for any expenses regarding education such as tuition fees, books, and supplies. However, just like any other loan, late payment is unethical and the borrowers must pay back the money with an interest.


  • Interest Rate: Around 4.50% p.a.
  • Loan Amount: Up to 20% or 25% of the subsidised tuition fee payable
  • Loan Tenure: Up to 5 years

3. Credit Cards (Revolving loans): Best for Flexible Spending with Convenience of Making Varied Monthly Payments

It might not occur to you, but credit cards are actually a type of unsecured loan! To note, a revolving loan is one that has a credit limit. When you use your credit cards, you borrow money from a financial institution, for example, a bank, until you get to pay back the money. 

Basically, what happens when you apply for a credit card is that a bank will approve a certain amount of money that the borrower can spend, repay, and use again.


  • Interest Rate: 0% p.a. (if paid on time); interest rate may vary per bank
  • Loan Amount: Depends on your credit card limit

“Use of credit cards over time without paying it back in full causes your balance to go up and your credit score go down and your interest rates go up,” Richard Graham, a senior debt consultant at Freedom Financial, warned. “So, you end up paying more for those items you couldn’t afford in the first place.”

4. Debt Consolidation Plan: Best For Streamlining Multiple Credit Card Bills and Personal Loans into a Single Loan

Debt Consolidation Plans (DCPs) offer a financial solution specifically designed for consolidating credit card bills, personal loans, and personal lines of credit into one loan. This option is available exclusively to Singaporean citizens or Permanent Residents (PRs). 


  • Interest Rate: Starts from 3.98% p.a.
  • Loan Amount: Up to more than 12x your monthly income (sum of the total outstanding debts, outstanding interest, plus an additional 5% on top of the total)
  • Loan Tenure: Up to 8 years
choosing the right unsecured loans

Choosing the Right Unsecured Loans

When you’re in the market for an unsecured loan, think of yourself as a detective combing through clues to find the best deal. Here’s how to compare the lineup:

  • Interest Rates: Compare the annual percentage rates (APR) as they encompass both interest rates and any fees charged by the lender. Lower APRs often lead to lower overall costs.
  • Fees: Keep an eye out for origination fees, late payment fees, and prepayment penalties. They can sneak up on your loan’s cost.
  • Repayment Terms: Look at the length of the loan term. Shorter terms generally mean higher monthly payments but lower total interest costs, and vice versa.
  • Monthly Payments: Consider how the monthly payment fits into your budget. You don’t want your loan to turn into a financial straitjacket.
  • Lender Reputation: Research lenders to ensure they have a solid reputation for customer service and reliability. Reviews and ratings can be telling.
  • Read the Fine Print: The fine print is where the secrets of your loan are buried. It’s crucial to understand every detail of the loan agreement before you sign.

Real-life Scenario

At 29 years old and grappling with nearly $80,000 in debt to banks, Gina from Singapore has turned to credit counseling for guidance. She now advises the youth to seriously reconsider before taking out loans and stresses the significance of managing finances wisely to prevent being in a position where borrowing is the only option.

Financial experts recommend that individuals make credit card payments on time to sidestep the accumulation of steep interest rates and late charges.

Eligibility Criteria for Unsecured Loans

Credit Score Requirements

For unsecured loans, lenders consider the borrower’s credit score, a measure of creditworthiness. A good credit score generally falls within the range of 670 to 739, according to the FICO score model, which is widely used by lenders. Scores above 740 are considered very good or excellent, while scores below 670 may be seen as fair or poor.

However, it’s important to note that licensed money lenders in Singapore do not solely focus on credit scores. Instead, they take a more holistic approach, examining the borrower’s overall financial situation to determine eligibility.

Income and Employment Verification

Lenders also require proof of stable income and employment to ensure that borrowers have the means to repay the loan. For instance, DBS, a prominent bank in Singapore, sets the following eligibility criteria for unsecured loans:

  • Nationality: Singapore Citizen, Singapore Permanent Resident, or Foreigners with an existing Cashline and/or Credit Card account
  • Age: 21 – 70 years old
  • Income: Minimum annual income of S$20,000

It’s worth noting that income and document requirements may vary from one bank to another. Therefore, it’s crucial to check the specific criteria of the lender you’re considering.

Other Factors Considered by Lenders

In addition to credit scores and income verification, lenders may consider various other factors when assessing an unsecured loan application. These can include:

  • Debt-to-Income Ratio: This measures the proportion of your income that goes towards repaying existing debts. A lower ratio indicates better financial health and repayment capacity.
  • Employment History: A stable and consistent employment history can enhance your loan eligibility, as it suggests a reliable source of income.
  • Existing Financial Obligations: Lenders will look at your current financial commitments, such as other loans or credit card debts, to determine your ability to take on additional debt.

Applying for Unsecured Loan

Steps in the Application Process

1. Assess Your Needs: First, figure out the exact amount you require. It’s wise to borrow only what’s necessary, despite potentially being eligible for more.

2. Explore Lenders: Look into both large-scale and community banks, credit unions, and online financial institutions that offer unsecured loans.

3. Evaluate Offers: Consider utilizing prequalification tools that many lenders provide. This lets you gauge your eligibility for loans without a formal application. Compare the interest rates, fees, loan duration, loan amounts, and any unique benefits across different lenders to find the best fit for your financial situation.

Once you have decided on a bank or financial institution, Applying for an unsecured loan, especially with institutions like DBS, has been streamlined to be user-friendly and efficient. Here’s what you typically need to do (using DBS as an example):

4. Log In: For existing customers, the process starts with a simple login using your digibank online, digibank mobile, or ATM/credit/debit card credentials. The beauty of being an existing customer is that there’s no need to submit additional documents at this stage.

5. Choose Loan Details: Once logged in, select your desired loan amount and tenure. This allows you to tailor the loan to suit your specific financial needs.

6. Submit the Application: The final step is the easiest—submit your unsecured loan application online. Depending on the bank or financial institution, you could receive instant cash, making the process incredibly swift and convenient.

Required Documents and Information

For salaried employees, freelancers, or those with variable income, the required documents differ slightly. Here are some of the basic required documents:

  • Copy of NRIC (Front & Back): Both salaried and commission-based employees need to provide a copy of their National Registration Identity Card.
  • CPF Contribution History Statement (Latest 9 months): This is required for salaried employees to verify their employment and salary contributions.
  • Latest 1-Year Income Tax Notice of Assessment (NOA): For variable commission-based employees or the self-employed, any one of the listed income documents, including the NOA, will suffice.
  • Latest Computerised Payslip: This is an additional document for salaried employees to prove income.
factors affecting interest rates

Factors Affecting Interest Rates

Several variables can sway the interest rates you’re offered. These factors ensure that the rate mirrors the risk the lender takes, as no collateral is on the line.

  • Credit Score: The beacon guiding lenders in the sea of loan approvals—your credit score can be the make or break for how much interest you’ll pay. According to Bankrate, the higher your score, the lower the risk, and in turn, the lower your interest rate may be.
  • Income and Employment Stability: A steady job and a reliable income stream are like music to lenders’ ears. They’re indicative of your ability to repay, possibly leading to better interest rates.
  • Debt-to-Income Ratio: This ratio measures your monthly debt payments against your income. A lower ratio sweetens the deal for lenders, possibly reducing your rates. According to the Monetary Authority of Singapore (MAS), a borrower’s TDSR should be less than or equal to 55%.
  • Loan Amount and Tenure: The amount you borrow and the time you need to repay can also influence your rate. Generally, higher loan amounts and longer tenures might increase the rate.
  • Market Conditions: Economic climates change, and so do interest rates. Lenders often adjust rates based on the current market conditions to maintain their competitive edge.

Repayment Schedules

Getting to grips with your repayment schedule is key to managing your unsecured loan responsibly:

  • Monthly Installments: Your loan is typically repaid in monthly installments, which include a portion of the principal amount plus interest. It’s your monthly date with debt reduction.
  • Loan Tenure: This is the timeline for repayment. Longer loan tenures can make each installment more manageable, but you’ll likely pay more interest over time.
  • Early Repayment Penalties: Some lenders might not be thrilled if you repay your loan early, potentially charging a penalty. It’s essential to understand these terms upfront.
  • Late Payment Consequences: Missing a payment can result in penalties and affect your credit score. Always mark your calendar or set reminders for payment due dates.


Without collateral involved, it falls to you to make loan repayments wisely to protect your financial well-being. By understanding the risks, knowing the terms thoroughly, and choosing the appropriate unsecured loan carefully, you’re set to confidently move through the unsecured loan process securely.

Key Takeaways:

  • Your credit score significantly impacts your unsecured loan terms; a higher score can mean lower interest rates.
  • Unsecured loans often come with higher interest rates and fees due to the lack of collateral—be aware of all charges before committing.
  • Choose a loan term that balances affordable monthly payments with the overall interest.

Unlock financial freedom today with A1 Credit. Whether it’s for unexpected expenses, education, or a much-needed getaway, we have affordable loans to suit your needs. Request a quote today!

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