5 Types of Long-Term Loans You Can Get in Singapore

There are times in our lives when we need to make large purchases, such as buying a new house, buying a new car, furthering our studies, or securing a renovation package for major home refurbishment works. And unless you are cash-rich, most of the time, many of us need loans from long-term money lenders to fund these milestones.

These might sound like a huge commitment (which they are), but if you plan out your loans and finances well, long-term loans aren’t something you should be anxious about.

Here, we share more about the reasons why people take up long-term loans, the distinctive features of loans with long-term payment, the common types of long-term loans in Singapore and their interest rates, loan tenure, as well as pros and cons.

Reasons why people take up long-term loans

There are many different types of long-term loans out there to cater to differ needs. In general, people take up loans with long-term payment for the following reasons:

1. To purchase a home

Let’s face it, a home isn’t the cheapest purchase anyone will make. In fact, a home is one of the most expensive things you can buy in Singapore.

Most people will require a home loan with a long loan tenure to ensure they can afford the purchase with a reasonable amount of down payment put down for their home. Such long-term loans are essential to ensure manageable monthly mortgage instalments.

2. To get a car

Whether you’re getting a car for personal or business use, a car purchase is likely to warrant the need for a car loan. The fact of the matter is that cars are expensive purchases in Singapore. Even the well-heeled ones in society take such long-term loans for their car purchases.

3. To further their studies

Higher education isn’t cheap regardless of whether you’re looking at attending classes locally or abroad. A long-term study loan can be especially helpful if you need to supplement your cash savings for the sake of furthering your studies.

4. To start or expand a business

A long-term loan can be useful if you’re taking out a business loan to start a business. The sky’s the limit when it comes to ways you can utilise your business loan — from paying for marketing costs and salaries to buying equipment and upgrading the workflow system, etc. Apart from starting a business, the loan can also be useful if you’re expanding your business!

5. To settle emergencies or unexpected large expenses

There are many people who turn to personal loans to settle emergencies or unexpected large expenses that come their way. Not everyone has a huge stash of savings in their pockets to rely on during a rainy day.

In case you didn’t already know, depending on where you obtain a personal loan from, the loan tenure can stretch for as long as 5 to 7 years! Such long-term loans are usually unsecured in nature, too.

What are the distinctive features of long-term loans?

Long-term loans generally are:

• Secured loans (i.e. they require assets to be pledged)
• Lower in interest rates
• Big in loan quantum

However, there’s no hard and fast rule, really. Case in point, there are multiple personal loans you can take with longer tenures but they don’t necessarily have to be secured with collateral if you can furnish the lender with solid documentation that you can afford these unsecured loans.

What are the types of long-term loans you can take?

1. Housing loan

Most of the time, when we purchase a property, we need a housing loan (i.e. home loan).

Housing loans differ based on the type of property you are buying (such as whether it’s public housing (HDB) or private housing) and where you’re taking a loan from — either HDB or the bank.

If you’re buying an HDB with HDB housing loan, the interest rate will remain at 2.6% per annum with a maximum loan tenure of 25 years as of time of writing, compared to any bank with interest rates ranging from around 2.30% to 4.88% per annum, calculated on a reducing rate. However, when comparing bank loans, be mindful that the lower rate you see for fixed rate loans typically only apply for the first year; you’d have to refinance continually to get lower rates thereafter. Otherwise, the interest rates usually go up much higher if you were to leave them as is!

HDB’s home loan generally has a lower interest rate in today’s high-interest rate environment. It is maintained at a fixed rate and requires a 20% down payment, compared to the usual 25% down payment required for bank loans.

HDB is also generally more lenient if a borrower can’t repay the loan on time, which is why many people opt for it — apart from the stability offered by HDB’s home loan.

2. Car loan

The loan terms for car loans may vary depending on the type of vehicle purchased and the loan principal amount and/or tenure. Most banks offer car loans with a maximum loan tenure of 7 years and an interest rate of 2.78% per annum (flat-rate) depending on your loan amount.

With a licensed money lender, interest rates can be 1-4% a month.

3. Study loan

Tertiary education is often costly and that’s where study loans can be very helpful. Most banks offer study loans with an interest rate of 4.2% to 4.5% per annum depending on your loan package’s terms and conditions. Licensed lenders generally charge up to 4% a month.

Take note that study loan packages have vastly different loan terms — some allow you to repay the loan after you’ve graduated so you can focus on your studies while some require you to make monthly repayments the moment your loan tenure starts. These long-term loans typically have tenures upwards of 5 years, if you’re considering taking out loans from banks.

4. Business loan

Start-ups and small businesses sometimes need a capital injection for various business needs, such as to ease cash flow, ensure smooth operations, upgrade machinery, or hire manpower. This is where SME business loans come in handy.

Some banks offer business loans with loan tenures that go on for years, at an indicative interest rate of 3% to 12% per annum, depending on the type of long-term business loan you go for. With licensed lenders, interest rates are 4-8% per month and loan tenure is usually up to 12 months.

5. Personal loan

A personal loan is incredibly versatile and often comes in handy when you need a sum of money for your personal needs, be it for emergencies or planned big-ticket purchases. The repayment can be spread out comfortably over a year or more so your monthly instalments are a lot more manageable as compared to other shorter-term loans.

Most banks offer 12-month loans with an interest rate of 1.9% to 5.54%per annum depending on your loan amount, while licensed lenders offer rates of up to 4% a month. As mentioned earlier, many banks offer longer tenures of 5 to 7 years for such long-term loans.

What are the pros and cons of long-term loans?

Pros of loans with long-term payment

1. Lower monthly repayments

Long-term loans give you instalments that are spread out over a longer period. Hence, they are often easier to manage monthly and more comfortable on the wallet as compared to shorter-term loans which will usually require you to repay more each month.

2. Enables borrowers to make large purchases at a lower monthly cost

The principal amount for long-term loans tends to be a lot higher as it’s often tied to purchasing large valuable assets such as properties, vehicles, or paying for tertiary education.

This makes it possible for people to make large purchases —for example, a house—with a reasonable loan repayment amount every month, without needing to fork out a large down payment using cold hard cash and/or a combination of their CPF monies.

3. Lower interest rates

For longer-term secured loans, lenders require the assets pledged to be used as collateral, such as a home or car. Because of that, lenders are naturally less worried about borrowers defaulting on their payments. Hence, these loans are considered less risky for lenders.

With fewer risks, lenders are often more willing to offer lower interest rates, despite the longer loan tenure.

4. Better cash flow

When you take up loans with a longer tenure, you enjoy better cash flow as you have more money for your everyday needs as opposed to repaying a larger monthly sum.

Cons of loans with long-term payment

1. More interest paid over time

The main disadvantage of opting for a longer loan tenure is the higher total interest you end up paying over time, as compared to shorter-term loans which have lower total interest charged (despite the higher repayment amount each month).

2. Collaterals attached to loans

Most long-term loans are secured loans, which means that collaterals are attached to the loan. This is especially common when the loan tenure is more than a year. If you’re not able to repay the loan in full, these collaterals can be seized by the lender.

3. It takes longer to become debt-free

Naturally, with a longer loan tenure, you’ll have to take quite a while more to completely pay off your debts as opposed to loans with shorter tenure.

Take note that for banks, long-term loans usually come with an early termination or redemption fee of around $250 or 2.5-3% of the early redemption amount, whichever is higher, for personal loans and 1-1.5% of the loan amount repaid early for housing and car loans.

Some types of loans come with a lock-in period (usually up to 5 years), during which you won’t be able to refinance or cancel your loan. Once you’ve moved past the lock-in period, you are not required to pay an early termination/redemption fee.

Licensed lenders do not charge early termination/redemption fees due to regulations. Curious to learn more about licensed lenders? Read up on the top 10 Q&As on borrowing from licensed lenders here.

Are there long-term money lenders you can work with?

Yes, Proper Credit is a dependable loan company you can work with long-term if you have the intention to take up loans periodically for the foreseeable future.

We are a long-term money lender that’s in the business of providing fair, transparent loans to people who seek financial funding quickly.

It goes without saying that we always strive to provide customer-centric service from start to finish at all times — regardless of whether you’re a new or returning customer. Reach out to us to find out more about our services, loans, and how we can help.