Secured vs unsecured loan: What's the difference?
A secured loan is money you borrow and secure against an asset you own, such as your home. In contrast, an unsecured loan doesn't require any asset as security.
In this article, we'll cover:
What is a secured loan?
A secured loan is money that is borrowed against an asset you already own, such as property. Other forms of assets that could be borrowed against include land, vehicles, high value investments or fine jewellery.
Secured loans are most commonly used for:
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Buying a property (home loans)
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Borrowing against a property's value (home equity loans)
The main benefit of secured loans is that they typically have lower interest rates than unsecured loans. This is because they pose less risk to the lender. You may also be able to borrow a larger amount with a secured loan.
But it's important to understand that your asset acts as security or collateral for the lender. This means that they could repossess and sell the asset if you don't keep up the loan repayments.
Loan-to-value ratio
The amount you can borrow may also depend on something called a loan-to-value (LTV) ratio. This is the size of the loan compared to the value of your asset. In Singapore, LTV limits can cap how much you can borrow for property loans. The loan amount also depends on factors including income assessment and existing debt obligations.
Explore: Home loans
What is an unsecured loan?
An unsecured loan doesn't require any asset as security or collateral. Instead, approval depends on things like credit profile and income. However, missing repayments can negatively impact your credit profile. This could make it more difficult for you to borrow in the future.
Common reasons for applying for an unsecured loan include:
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Consolidate borrowings
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Wedding expenses
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Education fees
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Medical expenses
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Travel or holidays
With unsecured loans, interest rates are typically higher compared to secured loans. This is because unsecured loans pose higher risk to the lender, with no collateral.
Credit cards and revolving credit lines are types of unsecured loans.
Comparison of secured and unsecured loans
| Feature | Secured loan | Unsecured loan |
|---|---|---|
| Collateral or asset required? | Yes | No |
| Interest rates | Generally lower | Usually higher |
| Loan amount | Usually higher | Lower and based on income and credit |
| Typical uses | Buying a property or home improvements | Weddings, education fees, medical bills, travel or consolidating debts |
| Feature | Collateral or asset required? | Collateral or asset required? |
|---|---|---|
| Secured loan | Yes | Yes |
| Unsecured loan | No | No |
| Feature | Interest rates | Interest rates |
| Secured loan | Generally lower | Generally lower |
| Unsecured loan | Usually higher | Usually higher |
| Feature | Loan amount | Loan amount |
| Secured loan | Usually higher | Usually higher |
| Unsecured loan | Lower and based on income and credit | Lower and based on income and credit |
| Feature | Typical uses | Typical uses |
| Secured loan | Buying a property or home improvements | Buying a property or home improvements |
| Unsecured loan | Weddings, education fees, medical bills, travel or consolidating debts | Weddings, education fees, medical bills, travel or consolidating debts |
Is a loan right for you?
Before gettting a loan in Singapore, it’s important to consider how urgently you need the money. If there’s no urgency, could you save some of the money over time rather than borrow it immediately? Alternatively, could you raise funds by selling something you already own?
Only go ahead with a loan if you're confident you can afford the monthly repayments.
How to apply for a loan in Singapore
Who can apply
You typically need to be aged between 21 and 65 years old. You also need to meet the minimum annual income requirements, which can vary depending on whether you’re a Singapore resident or an expat.
What lenders look at
Your employment details, credit score and overall financial standing might also be taken into consideration.
With both secured loans and unsecured loans, the amount you can borrow is based on your affordability. This depends on a combination of factors including:
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Your income
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Your credit profile
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Any outstanding borrowings you may have
Frequently asked questions
Is a personal loan secured or unsecured?
Most personal loans in Singapore are unsecured, meaning you don't need to provide collateral like a house or car. However, some banks offer secured personal overdrafts linked to deposits or investments.
Which type of loan has a faster approval process?
Unsecured loans are usually approved faster since they don’t need asset valuations, like property checks, before funds are released.
Can I use a secured loan for debt consolidation?
Yes, if you have property equity, you can take a secured loan (like a home equity loan) to pay off high-interest debts and possibly lower your monthly payments.
Ready to apply?
Apply for an HSBC Personal Line of Credit to enjoy affordable monthly repayments and zero processing fee.
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Note
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors are insured by the Singapore Deposit Insurance Corporation for up to S$100,000 in aggregate per depositor per scheme member by law. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.