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, most of us will need to take up long term loans for 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 details from interest rates to loan tenure as well as their 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 would need to take up 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) as well as where you’re taking a loan from – either HDB or the bank.

If you’re buying a HDB with HDB housing loans, the interest rate will remain at 2.6% per annum with a maximum loan tenure of 30 years, compared to any bank with interest rates ranging from around 0.80% to 2.8% p.a., calculated on a reducing rate.

Although HDB’s home loan generally has a higher interest rate, it is maintained at a fixed rate and requires a 10% downpayment, compared to the usual 25% downpayment 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 despite the higher rates.

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 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 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 money lenders would generally charge up to 4% a month.

You can usually repay the loan after you have graduated so you can focus on your studies instead of worrying about the loan during your period of study.

4. Business loan

Start-ups and small businesses sometimes need capital injection for various business needs, such as to ease cash flow, to ensure smooth operations, or to 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 effective interest rate of 6.5% to 24%. With licensed money lenders, interest rates are 1-4% 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 for renovations. It 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 money lenders 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 tend to give you installments that are spread out over a longer period of time. Hence, they are often much easier to manage every month and easier 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 easily at 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 easier for people to make large purchases (such as owning a home) with a reasonable loan repayment amount every month, without needing to fork out too large a sum for downpayment from one’s savings and existing disposable income.

3. Lower interest rates

With longer term secured loans, financial institutions and lenders would be less worried about borrowers defaulting on payments since the assets for which the funds are being borrowed are used as collateral – hence, these loans are considered less risky for lenders.

With less 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 will enjoy better cash flow as you will 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 collaterals are attached to the loan, especially if the loan tenure is more than a year. If you’re not able to repay the loan in full, collaterals can be seized by the lender.

3. Take 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 money lenders do not charge early termination/redemption fees due to regulations.

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