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 furthering our studies, buying a new house, securing a renovation package, or buying a new car. And unless you are cash-rich, most of the time, many of us need long-term loans 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 different types of long-term loans in Singapore and their interest rates, loan tenure, as well as pros and cons.

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.

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, compared to any bank with interest rates ranging from around 3.60% to 4.8% p.a., calculated on a reducing rate.

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 10% down payment, compared to the usual 25% down payment 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.

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 2.28% per annum (flat-rate) depending on your loan amount.

With a licensed moneylender, 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 student loans with a maximum loan tenure of 5 years and an interest rate of 4.38%-5.39% per annum depending on your loan amount. Licensed moneylenders would generally charge up to 4% a month.

Usually you only need to repay the loan after you’ve graduated so you can focus on your studies.

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.

Some banks offer business loans with a maximum loan tenure of 5 years and a simple interest rate of 3.5% to 11% per annum or an effective interest rate of 6.5% to 24%. With licensed moneylenders, interest rates are 1-4% per month and loan tenure is usually up to 12 months.

5. 12-month personal loan

This medium-term personal loan is versatile and often comes in handy when you need a sum of money for your personal needs, be it for a wedding or renovations. The repayment can be spread out comfortably over a year so the monthly installments are usually more manageable as compared to other shorter-term loans.

Most banks offer 12-month personal loans with an interest rate of 3.4%-11% per annum depending on your loan amount, while licensed moneylenders offer rates of up to 4% a month.

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

Pros

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 every month 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.

3. Lower interest rates

For longer-term secured loans, lenders require the assets for which the funds are being borrowed to be used as collaterals. Because of that, lenders would be less worried about borrowers defaulting on payments. Hence, these loans are considered less risky for lenders.

With fewer risks, lenders are often more willing to offer lower interest rates.

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

1. More interest paid over time

The main disadvantage of opting for a longer loan tenure is the higher total interest you would 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 would have to take 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 $150-$250 for personal loans and 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 moneylenders do not charge early termination/redemption fees due to regulations.