Picture yourself in this situation: after taking a personal loan for an urgent need or a significant life event, you’re now eyeing your dream home. Because of this, you find yourself facing a common problem experienced by many Singaporeans – balancing dreams and financial commitments.
As you weigh your options, understanding the intricacies of managing multiple loans becomes crucial.
The journey from asking “Can I take home loan after personal loan?” to actually navigate the process involves more than just comparing interest rates and loan terms. It’s about assessing your overall financial health and capabilities.
This article will guide you through the key considerations, helping you make an informed decision about managing personal and home loans.
Personal Loan Vs. Home Loan In Singapore
To better understand the complexities of taking a home loan after a personal loan in Singapore, it’s essential to grasp the differences and similarities between the two types of loans.
Key Differences
Purpose
When you ask, “Can I take home loan after personal loan,” understanding the purpose of each loan type is crucial. Personal loans in Singapore offer flexibility so this caters to a variety of needs such as funding an emergency, consolidating debt, or even covering travel expenses.
In contrast, home loans serve a more specific purpose. This financial product is designed specifically for the purchase or refinancing of a property, aligning with long-term investment goals in real estate.
Loan Amount and Term
Personal loans are generally available in amounts ranging from S$1,000 to S$200,000, with repayment terms typically spanning 1 to 5 years which make them suitable for immediate or short-term financial needs.
On the other hand, home loans in Singapore can vary significantly more in amount – typically from S$500,000 to S$1,000,000, reflecting the higher value of real estate. Their repayment terms are also longer, usually between 15 to 30 years. This comes as no surprise considering the long-term nature of property investment.
Interest Rates and Collateral
You should also consider the differences in interest rates and collateral between personal loans and home loans.
Personal loans often have higher interest rates (ranging from 4% to 8% for banks and a maximum capped at 4% for licensed money lenders) compared to home loans (2% to 3%), as they are unsecured loans that do not require collateral.
Home loans, on the other hand, are secured by the property itself, allowing for lower interest rates. Therefore, the risk is minimised for the loan provider, resulting in better terms for the borrower.
Similarities
Despite the differences listed above, personal and home loans in Singapore share some similarities, particularly in the assessment criteria.
Loan providers check the borrower’s financial stability and ability to repay the loan regardless of the type. This includes a thorough evaluation of income, credit score, and existing debts. These assessments ensure that borrowers asking “Can I take home loan after personal loan” are capable of managing the additional financial burden. Both loan types require a solid financial foundation, making it imperative for borrowers to maintain a healthy financial profile.
Should You Apply For A Home Loan After A Personal Loan?
By now, you have a clear understanding of the differences and similarities between personal loans and home loans in Singapore. But the question remains: can I take a home loan after a personal loan? Here are some factors you should consider.
Credit Score
A higher credit score enhances your credibility as a borrower and increases your chances of being approved for a home loan since it’s a reflection of your financial responsibility, signalling to loan providers that you’re capable of managing debt effectively. Consistently making timely payments on your personal loan can have a positive impact on your credit score.
Employment Status
Your employment history and status is not just about having a job, but having a steady income stream that assures lenders of your ability to meet monthly loan repayments. Stable employment is equated with financial stability, which is a key factor in the loan approval process.
Interest Rates
When you have both a personal loan and are considering a home loan, consider the cumulative interest rates of both loans. High-interest rates can significantly increase the total amount you’ll end up paying back. Therefore, understanding the interest rates and how they compound over time will help you know whether you can realistically manage the additional financial burden of a home loan.
Debt to Income Ratio
This metric indicates the proportion of your income that goes towards servicing debt. A lower debt-to-income ratio is preferable, as it suggests that a smaller portion of your income is already committed to debt repayments, making you a less risky borrower. If this ratio is high, it may be more challenging to secure a home loan, as lenders might question your ability to handle additional debt.
The Monetary Authority of Singapore (MAS) has established guidelines that are crucial to consider. As of 1 June 2019, the maximum limit for unsecured loans, which includes personal loans, education loans, renovation loans, as well as credit card lines and debts, is capped at 12 times your monthly income.
This means that if you have already borrowed up to 10 times your monthly income, your potential loan amount for any additional unsecured loan would be limited to just two times your monthly income. Exceeding this threshold indicates that you’ve reached the borrowing limit, which could significantly affect your eligibility for additional loans, including a home loan.
Can I Take Home Loan After Personal Loan in Singapore?
Yes, it is possible to take a home loan after having a personal loan in Singapore. However, this depends on your financial health, particularly your credit score, employment status, existing debts, and the ratios like Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR).
What to Do to Increase Your Chances of Getting Approved for a Home Loan after Personal Loan
Here are some tips to follow if you’re driven on getting both loans.
Improve your credit score
Make timely repayments on existing loans and reduce your overall debt and improve your credit score. If you’re still a beginner when it comes to loans, consider building your credit history first.
Stabilise your employment
A consistent employment record indicates reliable income, and this can greatly improve any loan provider’s confidence that you can pay back your loans.
Consider loan restructuring
Restructure existing loans to reduce monthly payments to free up income for a home loan.
Save for a larger down payment
A larger down payment can reduce the loan amount needed. More importantly, it makes you a less risky borrower in the eyes of banks, financial institutions, and licensed moneylenders.
The Bottom Line
Asking yourself “Can I take home loan after personal loan in Singapore?” depends on various factors that reflect your financial health. If you’re ready to explore your loan options, Crawfort is ready to assist you. With our expertise in providing tailored loan solutions, we can help you reach your goals. Apply for a personal loan today!