Which Personal Loan Should You Take: Secured or Unsecured?

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If you’re having financial problems, a personal loan in Singapore may be able to help. You must pick between a secured and an unsecured loan, whether you borrow from a bank or a regulated money lender in Singapore.

But how do you distinguish between the two? Which should you choose, given your current circumstances?

Situations under which a Personal Loan may be required

Before comparing secured and unsecured personal loans, it’s important to note that taking out a personal loan in Singapore is a serious decision. After all, you’ll need to be sure you’ll be able to repay it on time and with interest, so make sure you’re ready to take one.

In the following cases, obtaining a personal loan in Singapore may be a reasonable alternative.

Financial Emergencies That You Didn’t Expect

Being in a financial emergency due to an accident, a death in the family, or being laid off are all situations beyond your control. In addition, you may still be accountable for ongoing financial obligations such as bills and mortgage payments.

If you stumble upon this situation, a personal loan in Singapore might be able to help you get out of it. Your health insurance, for example, may not be sufficient to cover the entire medical expenditure. In this instance, you can pay off the remaining sum with a personal loan. You might also use the loan to pay for your medical bills in cash before receiving your insurance benefits. 

For a Vacation

Everyone needs to take some time off, and fortunately, your job may require you to take some days off each year. Take out a personal loan and go on a beautiful trip with your friends or family to enjoy your vacation.

Taking out a personal loan can assist you with budgeting.

Another benefit or advantage of taking out a personal loan for a vacation is that it forces you to set aside money for it. This may be valuable in assisting you in planning and managing your vacation expenses, as well as ensuring that you do not go overboard. 

A Personal Loan Can Be A Better Option Than Using Credit Cards

Applying for a personal loan rather than paying for your trip with a credit card may be a better option. While credit cards can make it easier to pay for things when you don’t have enough cash, particularly in local currency, they also make it easy to overspend.

Because you’re spending “future money,” there’s no limit to how much you can spend on a credit card. Spending with future money is also less difficult psychologically than spending with cash on hand. This makes it easier for you to blow your budget.

Using a credit card to pay for your trip could result in a bigger credit card debt if you tend to overspend and miss payment deadlines. Having a set amount of money from a personal loan, on the other hand, can assist in decreasing the risk of overspending.

To pay for education.

To avoid missing out on possibilities such as a promotion or a career move to earn a higher salary, it is critical to obtain a strong education and continue to enhance one’s abilities. Some jobs may become outdated as a result of the economy’s shifting needs and the recession. It is recommended that you take short courses to reskill in order to remain employed.

On the other hand, education can be costly, and you may find yourself unable to afford it. However, this does not have to prevent you or your child from receiving the greatest education available.

Personal Loans: Secured vs. Unsecured

Now that we’ve covered a few scenarios in which a personal loan can be a good idea let’s look at the distinctions between secured and unsecured loans.

Secured Loans

Secured loans are those that require the borrower to put up some form of collateral as a condition of borrowing. Car loans and home loans are examples of secured loans. Taking out a secured loan is the same as pawning your possessions at a pawn shop.

The item, which serves as collateral for the loan, can often be anything worth your own. This could include real estate, automobiles or motorcycles, other high-value assets such as fine jewelry, or even a fixed deposit. If you miss a repayment, the loan that you applied for, the financial institution or licensed money lender has the authority to confiscate and sell your assets in order to recoup their losses.

It’s possible that even after the lender has taken the collateral, it won’t be enough to meet your loan obligation. This is referred to as a shortfall, and it commonly occurs when property or items deteriorate in value over time.

It’s important to keep in mind that secured loans may have limitations on what you may do with the money. If you plan to use the money to buy a car, for example, you might be compelled to use the entire amount. On the other hand, secured loans from pawnshops have no restrictions on what you can use them for. However, they will ask you about the loan’s purpose.  

Unsecured Loans

When you take out an unsecured loan, lenders won’t require collateral. Unsecured loans offer higher interest rates than secured loans since the lender is taking on greater risk. If you, the borrower, fail to pay back the loan on time, it will result in a negative credit score, which could cause major problems in the future. This includes a lesser possibility of future loan approvals and the inability to obtain a credit card. It may even make it difficult to find work, particularly in the banking and financial area.

In most cases, there’s no restriction on how you can utilize an unsecured loan, whether it’s for medical bills or a vacation. Personal loans and payday loans are two examples of unsecured loans that can be used for almost anything.

Loans for home improvements are an exception. While you don’t have to put up any collateral to get a renovation loan, you are limited in what you may accomplish with the funds. You can only utilize a renovation loan to pay for renovations like electrical work, painting, or structural changes. It can’t be used to buy new furnishings. 

What Are The Benefits And Drawbacks Of Secured And Unsecured Personal Loans In Singapore?

It’s crucial to examine the benefits and drawbacks of both secured and unsecured loans before applying. This list summarizes the advantages and disadvantages of both types of loans to consider before applying for one.

Secured personal loan approval (PROS)

  • Credit history has less impact on approval prospects.
  • In general, you can take out a larger loan.
  • Interest rates and costs are lower.

Secured personal loan approval (CONS)

  • If you default, there’s a chance you’ll lose your collateral.
  • Even if you lose your collateral, you may still be responsible for any shortfall.

Unsecured personal loan (PROS)

  • There are no assets at risk.

Unsecured personal loan (CONS)

  • A higher rate of interest
  • It’s tougher to come by. 

Secured Personal Loans


Credit history has less impact on approval prospects

Even if you don’t have a good credit history, you may still be able to obtain a secured personal loan in Singapore. Secured loans are viable for folks who require money quickly but do not have a good credit history because putting up collateral reduces the lender’s risk.

In general, you can take out a larger loan.

By pledging a high-value asset as collateral, such as your home or car, you are effectively minimizing the lender’s risk. When this happens, the lender will be more ready to lend you a larger amount of money.

Interest rates and costs are lower.

In comparison to unsecured loans, you’ll benefit from cheaper interest rates due to the lender’s decreased risk. Another advantage is that secured loans have reduced charges.


If you default, there’s a chance you’ll lose your collateral.

One obvious disadvantage of secured loans is that you risk losing your collateral if you default on your payments. If you put your automobile up as collateral, for example, if you default on your loan, the lender can sell it to pay off your obligation.

Even if you lose your collateral, you may still be responsible for any shortfall.

As previously stated, if the value of your collateral is still insufficient to satisfy your loan, you must repay the remainder. This may also mean that not only will you lose your collateral, but you will also be unable to pay off your obligation at this time. 

Unsecured Personal Loans


There are no collaterals at risk.

An unsecured personal loan won’t require any collateral, so you don’t have to worry about losing precious items. Instead, the lender will consider significant aspects such as your credit history and annual earnings when processing your application.

Secured loans are known to have stricter terms than unsecured loans. You can choose how you want to spend the money you’ve been given, such as making a huge, sudden purchase like a new sofa or investing it.


A Higher Rate of Interest

Unsecured loans carry a higher risk for lenders because there is no collateral involved. Because the lender has fewer ways to collect costs if you default on the loan, this equates to higher interest rates than secured loans.

Can be Tougher to Obtain

Unsecured loans are typically more difficult to obtain from banks than secured loans unless you have a solid credit history. Because there is no collateral, lenders will require proof that you have a strong possibility of repaying the loan.

This also implies that getting an unsecured loan may be more difficult if you have no credit history because you’ve never taken out a loan or applied for a credit card. 

What to Choose Between Secured and Unsecured Loans

It’s vital to weigh the pros and downsides of both loan kinds when deciding which one you want to apply for.

If you’re leaning towards secured loans, you should know that there is a possibility you may lose your collateral. That’s why you need to consider whether you can afford to deal with the repayment fees and be responsible for the requirements. You may also be required to make up for any shortfalls.

When it comes to unsecured loans, make sure you can afford to pay the higher interest rate. If you default on your loan, the ramifications on your credit history will be severe. In the future, you will almost certainly be unable to obtain loans, such as to finance a new home.

After all, it’s natural for lenders to be leery of those who have a history of defaulting on their loans. As previously indicated, defaulting on a loan could jeopardize your work prospects.

If You Can’t Pay Back Your Secured Or Unsecured Loan, What Should You Do?

Defaulting on your loans is the last thing you and your creditors want. With that stated, if you ever have trouble repaying your loan on time, it’s important to know that you have a few options for getting out of debt. Choosing any of these options is always preferable to defaulting on your debt.

Re-negotiate your loan terms with your lender

Consider requesting a lower interest rate or a longer loan term from your bank or registered moneylender. Lenders are often more eager to restructure your loan than to let you fail on it, regardless of the terms. You do need to be ready because there will be some additional fees.

Consider a Debt Consolidation Plan

The Debt Consolidation Plan (DCP) is a sort of personal loan that lets you combine your unsecured loan debts, such as credit cards and personal loans. You’ll just have to pay a single lender once a month for all of your unsecured loans, making debt payments more affordable. Some unsecured loans, such as the following, are not eligible for the DCP:

  • Student loans
  • Medical loans
  • Joint accounts
  • Renovation loans
  • Business loans

Furthermore, the DCP is only available to those whose total unsecured debt is more than 12 times their monthly income.

Consult a Credit Counselor

Another alternative is to attend a credit counseling session, where you will receive advice on how to manage your debt from a credit counselor. During this meeting, the counselor will determine if you should apply for the Debt Management Program (DMP), which assists you in negotiating a more manageable repayment schedule with your creditors.

Suppose you have a total unsecured loan debt of at least S$10,000, several creditors, account connections with creditors for at least one year, and a source of income to make regular repayments. You may be eligible for the DMP in this situation.

However, keep in mind the limitations that come with being a part of the program. This means you’ll lose access to all of your credit cards and lines of credit, and you may not have the ability to apply for any unsecured credit.


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