Borrow without Collateral - comments by Dennis Ng

[Dennis Ng]

there's an article on Unsecured Personal Loan in TODAY 29 July 2006, entitled "Borrow without Collateral", here're my comments which appeared in the article, for everyone's easy reference:

Cheers!

Dennis Ng, http://www.HousingLoanSG.com

Unsecured loans are extended to an individual and do not require any form of collateral. These products are usually structured as either a term loan, or a revolving credit, also known as an overdraft (OD).
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Banks here can only offer unsecured credit to consumers who earn at least $30,000 annually. However, non-bank financial institutions such as GE Money can offer similar product to customers who earn just $1,600 a month, or $19,200 a year.
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For overdraft facilities, interest is charged only on the amount that is utilised. What is paid back will go back into the credit line to be available for use again. For example, if you are granted $10,000, and you use $5,000, you will only be charged interest on the $5,000. If you decide to repay $3,000, you will then have up to $8,000 to use again. Or if you repay the full $5,000, then your credit available will be back to the full $10,000.
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The interest charged on ODs is usually higher than that on a term loan. A term loan is for a fixed period of more than one year and repayable by regular instalments.
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Because of its revolving nature, an overdraft is considered more flexible than a term loan in terms of usage and repayment.
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"You only pay interest when you use the money. You can also re-draw on the facility when a need for cash arises again," said Mr Dennis Ng, founder of HousingLoanSG, an Internet portal for analysing home loans.

It is often used as "standby cash" for emergencies or other unexpected expenses, he added.
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"If you don't use it, you don't need to pay interest"
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However, a person using an OD needs to have the self-discipline to repay the loan over time.
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"Since the risk of overdraft is higher, the interest rates charged are also typically higher," Mr Ng said.
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On the other hand, a term loan is more suitable for a specific financing purpose.
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A term loan is disbursed in one lump sum upfront. You can choose a suitable time period to repay by monthly instalments.
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"Typically, you do not have the flexibility to 're-draw' the loan even after you have made some repayments" said Mr Ng.
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A term loan is more suitable when you know upfront how much cash you need, such as for a renovation or for tuition fees.
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"Customers who require lump sum financing to be repaid over a longer term for example, three years, would be better off with a term loan".