Higher interest rates charged for personal loans, but why?

Why are higher interest rates charged for personal loans? Because they are unsecured loans.

By: Hitesh Khan/

You need money and fast. Without a great credit score or any type of collateral to your name, the only option is an unsecured personal loan. After searching the web, you have noticed the interest rates are substantially higher than other types of loans out there. The fact doesn’t change that you still need to borrow the money, but now you cannot help wondering, “Why are higher interest rates charged on personal loans.”

Most personal loans are granted as unsecured loans. Borrowers don’t necessarily need to have the best credit or even any type of collateral as that is not the primary concern for the providers of these types of loans. Unsecured loans are provided more on good faith and what lenders need to provide are their name, NRIC and income verification.

No collateral is needed so if the loan goes into default, the lender will not get anything in return. Higher interest rates charged are the price to pay for not having collateral or a co-signer on these types of loans.

Because the lender is not operating with any type of collateral from the borrower, they are taking a greater risk. With that great risk comes higher interest rates as that is what a borrower can offer to a lender in that higher risk situation; a bigger rate of return.

Banks or other financial institutions do not usually process unsecured personal loans, thus the rules for loaning the money are not as closely monitored by the Government (although new rules regarding interest rate caps sometimes loom on the horizon).

The higher interest rates charged are justification for that reason as well.

With bigger risks come bigger payouts. Whether it is in the guise of starting your own company, putting all the money on one horse to win or by lending high-risk borrowers money, the returns are greater because of the bigger chance taken. Unsecured personal loans are a great way to borrow money quickly if you are in a pinch, but it is less than likely a great bargain will be found on the higher interest rates charged that you will have to pay.

Licensed Moneylenders 

If you are in a bit of a pinch and all the doors appear to have closed, you can also consider licensed moneylenders. Moneylenders in Singapore have to be registered and licensed with the Registry of Moneylenders. Most moneylenders operate with the goal of offering instant cash loans to Singaporeans, Permanent Residents and foreigners in Singapore. Moneylenders offer fast, hassle-free and efficient services to their clients.

Licensed moneylenders are useful to people who may find it highly challenging to procure a significant amount of money in a short span of time.

Licensed moneylenders being providers of non conventional personal loans will simplify your application process thereby making the cash loan more readily available.

But before you approach a licensed money lender, consider other alternatives, such as the various financial assistance schemes offered by various Government agencies. As you are legally obliged to fulfil any loan contract you enter into with a licensed moneylender, consider whether you are able to abide by the contractual terms, bearing in mind your income and financial obligations.

Borrow only what you need and are able to repay. Be mindful that if you are unable to meet the contractual terms, the late payment fees and interest payment will be a financial strain not just on yourself but also on your family. The law requires moneylenders to explain the terms of a loan to you in a language you understand and to provide you with a copy of the loan contract. Make sure you fully understand the terms of the contract, in particular, the repayment schedule, the interest rate charged and the fees applicable.

Regardless of how much of a financial crunch you are in, you should always shop around different moneylenders for the most favourable terms. You should not rush into and commit yourself to a loan until you are satisfied with the terms and conditions.

But whatever your financial difficulty may be, never, ever borrow from unlicensed money lenders. The loans they offer are predatory in nature, with much higher interest rates, and will entrap you.

How to Secure Personal Loans Quickly

If you are in a financial crunch and are searching for personal loans to expand your business, trusted loan consultants can set you up on a path that can get you a it in a quick and seamless manner. Trusted loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. You should also find out money saving tips.

You should also look at Affordability Tools to help you make better property buying decisions. Good Calculators can help you ascertain the fair value of a property and find properties below market value in Singapore.

If you are looking for a new home loan or to refinance, trusted Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all their services are free of charge. So it’s all worth it to secure a loan through them for your business expansion needs.