Long-term loans are a common financing option that both businesses and individuals use for investments, debt restructuring, or asset acquisition. Typically, such loans involve relatively larger sums of money and require anywhere from three to 30 years to be repaid. A general rule of thumb when applying for a long-term loan would be that the larger the amount borrowed, the longer the tenure.
That being said, whether it’s a business or an individual taking up the loan, borrowers must be mindful of long-term loans’ advantages and disadvantages before committing to one.
If you’re looking for a long-term loan to aid with your cash flow, read on to find out more about the reasons why you might require long-term loans, the common features of long-term loans, the types of long-term loans available on the market, the pros and cons of loans with long-term payment, and where to find long-term money lenders that are dependable and in it for the long-term.
Reasons why you might require long-term loans
There are plenty of reasons why one might need a long-term loan at some point in time. Typically, people take up long-term loans when they meet a certain life milestone and require a fairly large sum of money to make that milestone a reality.
Here are a few common reasons why people take up loans with long-term payment plans.
1. Home purchase
Properties are pricey in Singapore, both new and resale. Like it or not, a long-term loan stretching for decades is often necessary when it comes to a home purchase.
This rings true no matter whether you’re purchasing an HDB flat, executive condominium, or private property.
2. Car purchase
While convenient, cars in Singapore are definitely costly thanks to the COE framework that Singapore has adopted.
Whether you need a car for family use, business use or to facilitate you making a living through offering rides or delivery services, cars are an absolutely big-ticket item people spend on that requires a long-term loan that stretches up to 7 years.
3. Further studies
Higher education may or may not be worth the effort for everyone, but if you’ve decided to embark on furthering your studies, be prepared to fork out a large sum of money.
Typically, an individual will take up a long-term loan that stretches for a few years to help supplement the hefty fees involved.
4. Business venture
Starting a business involves pumping in capital. Not every budding entrepreneur has a large sum of money sitting around solely for this purpose.
In such circumstances, a relatively long-term business loan can come in handy when the opportunity to start or expand a business comes by.
5. Emergencies
Did you know that personal loans can be used for a myriad of different emergencies out there? Also, personal loan providers offer a fairly broad range of loan tenures to cater to different needs.
Case in point, banks offer personal loans that stretch up to 7 years although most of them offer loan tenures of up to 5 years. Authorised money lenders, on the other hand, usually offer personal loans with 12-month tenures, though 24-month tenures aren’t out of the question for some lenders.
Common features of long-term loans
- Long loan tenure stretching years
- Secured (i.e. requires collateral to be pledged)
- Big loan sum
- Lower interest rates
Types of long-term loans available on the market
There are many types of long-term loans designed for different needs that different loan providers offer to borrowers. .
1. Home loan
Depending on the type of property you’re after, banks, financial institutions and the HDB offer home loans to people looking to purchase properties in Singapore. Different loan providers offer different home loan packages, so definitely do your research!
As properties are huge sums of money, it is completely understandable that these home loans with long term payments easily stretch up to 20 or 30 years — this is so the monthly mortgage instalments are more manageable for the masses.
HDB home loans are meant for eligible folks buying HDB flats. The interest rate is fixed at 2.6% per annum as of time of writing, with a maximum loan tenure of 25 years. Banks, on the flip side, offer reducing interest rates hovering around 2.45-3.97% per annum as of time of writing. Note that banks’ interest rates often fluctuate due to changes in the interest rate environment!
2. Motor vehicle loan
The maximum car loan you can get in Singapore is 70% of your car’s open market value. In case you were wondering, the majority of the banks in Singapore offer car loans with a maximum 7-year tenure at an interest rate of around 2.78% per annum.
Some long-term money lenders do offer car loans to borrowers as well, though the interest rate is much higher at 1-4% monthly.
3. Education loan
Let’s face it, higher education is costly regardless of whether you’re pursuing it in Singapore or overseas. Education loans can be very helpful if you’re looking to gather funds to support your endeavour to further your studies.
Different loan providers have different types of education loan packages with varying loan terms and repayment schedules.
Most banks in Singapore offer education loans with interest rates ranging from 4.2-4.5% per annum while licensed lenders offer education loans with interest rates ranging from 1-4% monthly.
4. Business loan
A business loan can be useful for anyone who’s trying to start or expand their business. Capital injections are good for a variety of uses, such as to ease cash flow, purchase equipment, upskill workers, upgrade machinery, hire more workers, etc.
Both banks and licensed lenders offer their own rendition of business loan packages, so definitely do your homework to find the best one that suits your needs most. In general, banks’ loan tenures are quite a bit longer compared to licensed lenders.
5. Personal loan
Banks and licensed lenders both offer an array of personal loan packages for borrowers with differing needs, with banks offering much longer loan tenures than licensed lenders (i.e. 7 years vs 2 years).
Personal loans from both types of lenders work similarly, though. A lump sum is disbursed and the loan is to be repaid in monthly instalments for as long as the agreed loan tenure is.
While banks’ personal loan interest rates are much lower than what licensed lenders can offer, not everyone is in the position to get a loan from the bank, especially if their income is on the lower side or if their credit score isn’t the best.
Pros of long-term loans
Manageable repayment terms
With a longer loan tenure, your monthly repayments will be smaller hence more manageable. This lowers your risk of making late repayments, skipping repayments or even defaulting on your loan.
Additionally, this can reduce any large impact on your cash flow and prevent you or your business from being constantly cash-strapped.
These are the main reasons why some borrowers prefer a longer loan tenure over a shorter one. The same applies to 12-month cash loans vs 1-month cash loans because borrowers tend to feel less financially burdened if they are allowed to pay less every month.
Ability to make large purchases that otherwise wouldn’t have been possible
Thanks to long-term loans’ generous loan tenure, large loan sums can be spread across years of instalments with reasonable amounts, enabling the big-ticket purchases to be feasible ones that otherwise wouldn’t have been possible.
What big-ticket items are we talking about here? Think: house, car, a couple of years’ worth of higher education, etc. Long-term loans allow these big-ticket items to be manageably repaid over a fairly long period of time.
Competitive Interest Rates
Another great advantage of long-term loans is that their interest rates are generally competitive when compared to short-term ones. This is especially true if you’re taking on a secured loan over an unsecured one as lenders deem you less risky a borrower and are less worried about you not making repayments. As such, lenders are often more willing to extend lower interest rates.
Cons of long-term loans
1. More interest overall
The longer the loan tenure, the more interest you’ll end up paying at the end of everything. With a longer loan tenure, the total interest will be higher than if you were to clear your loan with a shorter tenure.
2. Collaterals may be at risk of getting seized
While not all long-term loans are secured loans, many of them are or can be secured loans. As such, if you were to default on your repayments, you might lose your assets to repossession if you default on your monthly repayments.
What does that mean exactly? Well, put simply, your pledged collaterals are at risk of getting seized by your lender. They have all the rights in the world to do that, and there’s nothing you can do if things get to that stage.
3. Your journey to becoming debt-free will take longer
It goes without saying that with a longer loan tenure to contend with, you’ll stay in debt for longer. Although this may or may not be a determining factor whether or not you take up a long-term loan, it’s still noteworthy if you’re the kind of person who generally prefers to be debt-free.
Where to find dependable long-term money lenders
Need a long-term loan right now but can’t seem to get it approved at traditional banks? Look no further than Dio Credit, an experienced long-term money lender that’s in it for the long-haul.
We’re a credible loan company nestled in the heart of central Singapore that offers a myriad of customisable long-term loans for your needs. But this isn’t our sole service, we offer many more packages varying from payday loans to renovation loans.
Simply send in your application for a long-term loan on our website to get started. Otherwise, feel free to contact us to find out how we can help you or to find out more about our highly personalised services.
Old Content:
A long-term loan is a common financing option that both businesses and individuals leverage for investments, debt restructuring, or asset acquisition. Typically, such loans involve relatively larger sums of money and require anywhere from three to 35 years to be repaid. A general rule of thumb when applying for a loan would be that the larger the amount borrowed, the longer the tenure.
Personal loans, debt consolidation loans, business loans, and renovation loans are among the most common types of long-term loans. That being said, whether it’s a business or an individual taking up the loan, borrowers must be mindful of long-term loan advantages and disadvantages before committing to one.
If you’re looking for a long-term loan to aid with your cash flow, read on to find out more about long-term loan advantages and disadvantages.
Advantages of Long-term Loans
Loan term loans like personal loans and business loans generally offer larger principal amounts. However, that’s not the only benefit that borrowers get. There are two more important advantages of taking on a long-term loan:
Manageable Repayment Terms
With a longer tenure, your monthly repayments would be smaller hence more manageable. This lowers your risk of making late repayments or even defaulting on your loan.
Additionally, this can reduce any large impacts on your cash flow and prevent you or your business from being constantly cash-strapped.INSERT VISUAL HERE
These are the main reasons why some borrowers prefer a longer loan tenure over a shorter one. The same applies to 12-month cash loans because borrowers tend to feel less financially burdened if they are allowed to pay less every month.
Competitive Interest Rates
The second great advantage of long-term loans is that their interest rates are generally competitive when compared to short-term ones. This is especially true if you’re taking on a secured loan over an unsecured one.
The competitive interest rates give borrowers a chance to manage their finances or acquire assets in the meantime without incurring hefty interest payments. Letting your debt snowball is never a good idea and opting for a longer loan tenure helps to lower that risk.
Disadvantages of Long-Term Loans
There is no perfect loan type or tenure, with each having its pros and cons. This applies to long-term loans, which have two major disadvantages:
Need for Collateral or a Guarantee
When evaluating long-term loan advantages and disadvantages, the need for collateral or a guarantee often stands out as a concern. If you’re taking on a large amount with a tenure that’s a decade or longer, this is especially applicable to you. That’s because you might lose your assets to repossession if you default on your monthly repayments.
Because long-term financing generally comprises larger sums of money, imposing a collateral requirement reduces the financial risk for institutions like licensed money lenders. It ensures that they can recover their losses if borrowers are unable to repay their loans.
Collateral for a secured loan can constitute one’s vehicle, residential or commercial properties, or even jewellery.
Stringent Requirements and a Longer Processing Time
Since lenders face more risk due to the relatively larger value attached to long-term loans, they impose a more stringent approval process before approval. This applies to both licensed money lenders and banks.
Essentially, borrowers must have a positive credit history and prove that they finance the loan. The latter can come in the form of income proof if you’re an individual or annual revenue if you’re applying for your company.
To make the application process faster and more seamless, do prepare the following documents beforehand:
Individual Borrowers
- Identity card or passport
- Latest Income Tax Assessment
- Latest 12 months of CPF contribution history
- Latest three months’ payslips
- Relevant documents on the collateral (for example, Option to Purchase or Sales and Purchase Agreement for your property)
- Latest credit facilities statements (for example, existing home loans, credit cards, car loans, or personal loan facilities)
- Latest Credit Bureau Singapore (CBS) Report
Corporate Borrowers
- ACRA business profile information
- Latest two years’ Notice of Assessment (NOA) of all directors
- Latest Credit Bureau Singapore (CBS) Report of all directors
- Latest two years’ company financial statements
- Latest six month’s company bank statements
- Guarantor’s identification documents and income tax assessment
- Some lenders may request for company’s accounts receivables aging list and upcoming contracts
For corporate borrowers, do spend the time to research the exact loan that your company needs first. That’s because you might need to provide a different set of supporting documents to apply for it. In any case, it pays to be meticulous with your company’s recordkeeping, regardless of whether you’re planning to apply for a loan.
If you need a reputable licensed money lender in Singapore, look no further than Dio Credit. With a wide range of loans for both individuals and businesses on offer, our experienced loan executives will pinpoint the exact one that you need. Simply contact us to begin your application for a long-term loan.
