A Beginner’s Guide To Secured Vs. Unsecured Loan

When you’re short on cash, loans are your ultimate best friend. Depending on what your intended usage is, there are tons of loan options you can choose from in Singapore.

Ultimately, it comes down to choosing between a secured loan in Singapore vs. unsecured loan in Singapore. These two loans vary widely especially when it comes to their interest rates, and terms and conditions.

Before you decide to apply for a secured loan or unsecured debt, it’s crucial to know which of the two loans is the best fit for your needs.

In this article, we’ll examine the nitty gritty details of secured and unsecured loans in Singapore.

Here at OMY, you will discover the following:

What Is An Unsecured Loan?

Unsecured Loan

An unsecured debt is a type of loan that does not require you to pledge any collateral. This means that you do not need to put up any property, vehicle, or any other asset as a guarantee for the loan. The money lender has no financial stake in your assets, hence the name unsecured.

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Unsecured loans are generally used for personal purposes and are in no way connected to your business.

In case you fail to pay the money back, it will not have adverse effects on a specific property or asset that the bank holds. Unsecured debt can be used for any purpose like to get a new smartphone, to pay off your credit card debts, or even to travel.

What Is A Secured Loan?

A secured loan is a kind of loan that requires you to pledge an asset as collateral. In short, a borrower needs to put up a specific property, vehicle, or other assets as a financial guarantee to a lender.

The pledged asset is then used as a financial guarantee to the lender; if the borrower fails to make payments, the lender is legally entitled to recover the debt by selling the asset.

Secured Loan In Singapore: What Counts As Collateral?

Collateral is considered something of value that a lender can take over, to recover their losses if a borrower fails to make payments.

For secured loan in Singapore, the most commonly used assets to act as collateral for a secured loan include the following:

  • New and used vehicle
  • Equity in your home
  • Term deposits
  • High-value assets

Secured Vs. Unsecured Loan: What Are Their Major Differences?

Making the choice between a secured vs unsecured loan can have a huge impact on your approval. We’ve gathered what makes the two types of loans different below.


In the case of unsecured loans, there is no need for borrowers to put up collateral. However, for secured loans, the borrower is obligated to put up collateral that the lender can take over if the borrower fails to make payments.

Borrowing Limit

Borrowers with good credit scores are more likely to get a loan with a higher borrowing limit, regardless of the loan type. However, that doesn’t mean those with bad credit scores cannot get a higher borrowing limit. This can be done if they have collateral.

Interest Rates

In general, unsecured loans will have higher interest rates than secured loans. That’s because the lender is effectively taking more risk.

With a secured loan, the lender can recuperate their losses by taking over the borrower’s property if needed. But if the borrower fails to make payments for unsecured loans, the lender will lose money.

Qualification Requirements

Unsecured loans are usually given to those with good credit scores. On the other hand, secured loans in Singapore are mostly given to those with bad credit where the borrower must have collateral like a vehicle or property that can be taken over by the bank if they fail to make payments.

Advantages Of Taking A Secured Loan In Singapore

Lower Interest Rate

When it comes to secured loans, you can enjoy lower interest rates because the bank or financial institution is taking on less risk as they hold some form of collateral.

Higher Loan Amount

In general, secured loans can be up to 80% of the value of your collateral. This means you may be able to borrow more from the bank if your collateral’s value is high.

Easier Loan Approval

With secured loans, it is easier to get approval from the bank or financial institution as the bank has something to gain in case you fail to make payments.

Lower Requirements

Secured loans are given to those with less stellar credit scores, so you may be able to get a secured loan even if you earn less than the required annual income.

However, you still have to present your payslip to prove that you can pay back the loan.

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Advantages Of Taking An Unsecured Loan In Singapore

Unsecured Loan Singapore - Debt Consolidation

Easy Process

Unsecured loans have simple qualification requirements, which means you can easily get approved. You do not need to worry about any form of collateral or assets to be used as a guarantee for your unsecured debt.

Quick Disbursement

With unsecured debt, it is easier to get the money especially if you submit all your documents on time. This is great for those who need urgent cash.

No Risk Of Losing Your Property

Since there is no collateral needed, you do not have to worry about losing your property to the bank if you fail to make payments on your loan. However, your credit score will be affected.

The Loan Amount Can Be Used For Any Purpose

With an unsecured loan, you can use the money for whatever you need. It can be used to pay off old debts, renovate your home, or buy a new property.

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Disadvantages Of Taking A Secured Loan In Singapore

Potential Asset Loss

If you fail to make payments on your secured loan, your collateral will be taken by the lender until you settle the debt. So, before taking a secured loan, you have to make sure that you have the capability to pay off your loan.

Disadvantages Of Taking An Unsecured Loan In Singapore

The requirements can be demanding

When you go for an unsecured loan, the requirements are usually higher, as there is no collateral involved. This can be difficult for those who have bad or poor credit, or those with low incomes.

High interest rates

Although unsecured loans have no collateral requirements and have simpler processes (since there is not much paperwork involved compared to loans with collateral), interest rates are relatively high. They are mainly for those who need urgent cash but can still afford high interest rates.

Smaller loan amount

Since you do not have any collateral to borrow, unsecured loans come with smaller loan amounts. They are mostly for personal expenses and not property purchases.

Shorter loan tenure

Unsecured loans usually have shorter loan tenures, usually between 3 and 5 years. This is great for those who don’t want to pay too long for their loans.

What If You Can’t Pay Back Your Loan?

There are several things you should do if you are not able to pay your secured or unsecured loan. First, you need to tell the bank immediately, as this is the right thing to do. The bank will then determine whether or not you are able to pay your loan.

If you fail to make payments on your secured loan, the bank or financial institution can repossess your collateral. When it comes to unsecured loans, your credit score will suffer, which means you may not be able to get financing from the bank in the future.

But in most cases, the lender can give you another chance. However, this is only possible if you can give a good reason why you failed to pay back your previous loan.

If you think you’re unable to pay back your secured loan, here’s what you should do:

Talk to your lender about the terms and conditions of your loan

Most banks and financial institutions are willing to renegotiate the terms and conditions of your loan. You might be able to get a longer repayment tenure or a lower interest rate.

For example, if you suddenly lost your job, your lender might agree to give you a longer repayment tenure so that you can get back on your feet.

Research debt consolidation choices

Debt consolidation is a method of combining your existing debts into one payment plan that is more manageable. With a debt consolidation plan, you need to pay off all your debts in one lump sum, and the repayment period is longer, usually between 8-10 years. The idea behind debt consolidation is to make the repayment process easier.

Secured Vs Unsecured Loans: Which Loan Is Perfect For You?

If you are looking for a loan, you need to consider your options carefully.

A secured loan is the best choice if you can provide some collateral for your loan. This is the most preferred type of loan if you have a low income or bad credit, as there is a lower requirement.

In fact, this is the most common type of loan for property purchases. Let’s say for example, you want to buy a brand new apartment. The bank can lend you the amount you need as long as you have some collateral.

On the other hand, unsecured loans are a great option if you have a good credit score and your income is consistent. You can even get an unsecured loan with a subpar credit score. However, the requirements and interest rates may be higher, as there is no collateral involved.

When it comes to choosing between a secured loan in Singapore and an unsecured loan in Singapore, it is a matter of preference.

A Word from OMY

In the end, unsecured loan and secured loan in Singapore are both useful in different ways. Depending on your unique situation, one might be a better option for you than the other.

Whichever option you choose, just remember that secured loan in Singapore is less risky for banks and can give you tons of advantages when it comes to interest rates and payment terms. On the other hand, unsecured loan is risky for banks, and it usually comes with stricter requirements to lessen the risk taken on by lenders.

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