Consumer Loans and Financing 101 – Types of Facility and Loans

loans and financing 101Credit card

Shiny colourful cards that allows you to buy goods with merchants on credit with the settlement of the outstanding at the month end. Banks typically grant up to 2x credit limit of income. No interest is payable if full settlement is make before due date or will else attract a rollover interest of about ~24% per annum.

 

Cashline / Creditline

Typically comes along together with a credit card facility and offers you cash liquidity up to 2x credit limit of your income. Interests start accumulating the moment you start to draw on your cashline.  Atm cards and cheque book are generally issued for your convenience to draw on the facility if needed. Interest charges typically start from ~17% onwards.

 

Car Auto Loans

An car auto loan financing allow many of the boys to buy and own their dream cars. In Singapore, the maximum tenor for car auto loan financing is up to 10yrs and interest is charged at about 1.68% – 1.88% flat rate. Note flat rate interest rate computation. The real effective rate is slightly less than 2 times of the flat rate as interest computation is based on initial principal amount. 

 

Mortgage Loans - HDB Home Loans & Private Property Home Loans

The ultimate financing that allows you to own your dream house. Financing terms can differ very vastly from car auto loans and allows you tenor of up to 35 yrs.  Computation of mortgage interest rate as compared to car auto loans is also different in effective rate terms on a reducing balance computation vs flat rate terms for car loans.

Housing loan packages in Singapore can come in multiple variants, pegging the financing terms to Sibor, SOR, Fixed Rate, Fixed Deposit, Variable Board rate with different variations of lock in period, partial repayment terms and full redemption penalties.

An interest package that offers the lowest interest at point of application time may not necessary be the best for you. Many other factors like interest rate mechanism, flexibility, repayment terms and penalties play a key factor.

Prioritise your needs and look for something that fits your needs most comfortably. Due to current low interest rate environment in the United States and Singapore central bank interest rate tracking the US, we generally see very low financing cost in Singapore. A typical home / housing loan financing package varies between ~1% to 1.4% depending on the terms and conditions of the package that you took up. 

Lock in terms are also very much more flexible as compared to a car auto loan financing, hence allowing you to seek refinancing of your mortgages every 2-3 years depending on your lock in plans.

Other types of home loan financing include bridging loans, cash out equity term loan  for private properties and renovation loans.

Bridging loans can come in handy when you have sold off your current house and is awaiting the proceeds from the sale of the house to come in for the new purchase of your new home / house. A bridging loan allows you to bridge the financing gap for your next new home purchase. Typical repayment terms are up to 6mths and to be settled upon receiving proceeds from the sale of your property.

Cash out equity term loan allows you to cash out on the asset value of your private property and is only applicable for private properties. If the value of your house has gone up significantly, then you may be able to take advantage of the rise in valuation for equity cash out on your house.

A renovation home loan as the name implies grants you financing for the renovation of your house. You can typically borrow up to 6x of your monthly income with repayment terms of up to 5yrs.

In a snapshot, the main types of consumer loans are as above. There are some other financing loans like secured overdraft, fractional mortgages, financing for A&A and construction loans etc. but since these are not commonly applicable to most people, we will leave them out for the moment.