Singapore is considered one of the priciest places to live in the world. The average cost of living in the country is relatively higher compared to most of its neighbouring countries in the Southeast Asian region. For this reason, living in Singapore as an expat can make you prone to financial difficulties.
Financial challenges are inevitable when living in a foreign country, especially since emergencies are always just around the corner. Even so, there are many options to obtain sufficient funding such as applying for foreigner loans from licensed moneylenders.
Read on below to learn more about a foreigner loan and the different factors that you need to consider when taking one.
What is a foreigner loan?
A foreigner loan, as its name suggests, is a type of personal loan that is offered to non-citizens or permanent residents who are living in Singapore. It is usually offered by major financial institutions and licensed moneylenders to those foreigners who are staying and working in the country.
The main difference of a foreigner loan from the other standard types of personal loans is found in the eligibility criteria. While most kinds of personal loans help people tide through difficult times, foreigners are generally expected to meet a higher income requirement.
Moreover, banks and moneylenders also usually approve a foreigner loan based only on your salary and employment permit or pass type.
How does a foreigner loan work?
The process of foreigner loans varies according to the financial institution and the type of loan you are considering. However, generally, certain facts to know before applying remain the same – such as being required to submit documents that prove your employment eligibility in Singapore for at least a year.
If you do not have a credit score, you can still apply for a foreigner loan for as long as you have a stable income or a guarantor who is a Singaporean / Permanent Resident of Singapore. You should make clear your intention and ability to stay in the country during the term of your loan, as it is one of the most crucial aspects that financial institutions take into account.
However, if you intend to leave the country during your loan tenor, there is a huge chance that banks and moneylenders will be unwilling to lend you money, even if you have high income in Singapore and a guarantor.
Here are the basic requirements that you need to meet when applying for foreigner loans in Singapore:
- You must be at least 21 years old
- You must possess a valid Singapore Work Pass
- You must be employed on a full-time basis
- You must secure an employment letter for your workplace
- You must show your pay slips for the last 3 months
- You must have proof of your residential address, such as a signed tenancy contract, phone bills, PUB bills, and others
Factors for securing the best foreigner loan
There are several types of personal loans you can get in Singapore as a foreigner, such as unsecured personal loans, secured personal loans, payday loans, installment loans, and debt consolidation loans.
However, it is important for you to remember that not all loans are created equal. Some loans may be better suited for your situation and financial capabilities than the others. Before you make a final decision, it is necessary that you do your research and compare your options first.
Here are some of the most important factors that you should consider when deciding to take a foreigner loan:
- Interest rate
When getting any type of loan, you should always consider the interest rate. Typically, people would take a loan that has a lower interest rate compared to the others.
However, if a loan with low interest rate has fees that are too high, it may not be a good idea to get it. Loans with a high interest rate and low fees can provide you with the best value instead.
- Effective interest rate
The effective interest rate (EIR) is another crucial factor that you should keep in mind when taking a loan as a foreigner. The EIR is basically the usage rate that you would actually pay on a loan. It reflects the loan’s interest rate, fees, and other charges – hence, EIR is a very useful tool when comparing your options.
- Loan term
You must carefully choose the term of your loan based on your situation. While many people prefer a longer loan term because it reduces their monthly payment, it may be burdensome for you in the long run, as it increases the amount you pay in interest over time.
On the other hand, a shorter term minimises that amount you pay in interest, but it also doubles the payment that you have to make month-to-month.
- Flexibility of repayment
Many moneylenders would allow you to have your repayments either weekly, fortnightly, or monthly. It is necessary that you choose the option that suits your pay frequency and find out whether the lender allows for extra payments without penalty, so you can clear your loan early and spare yourself from paying significant interest.
Many moneylenders also offer attractive deals and discounts. You can look out for these offers when considering your loan options, but remember that they might not be helpful to your situation all the time. It is always much better to get a loan that suits your needs.
There are many reliable moneylenders in Singapore, but there are also loan sharks and other opportunists. Before taking out a loan, do your research first, so you can avoid crooked lenders as much as possible. If the loan seems too good to be true, there is a great possibility that it would bring you more harm than good.
New change to take note of as a foreign borrower
However, besides understanding the factors involved in getting the best loan, it’s also important to stay updated about the new changes to foreigner loans, such as updates to supply caps, loan limit, and so on.
In fact, there is a new update on the supply cap for foreigner loans. As of 30th September 2021 onwards, all foreign borrowers (S Pass or E Pass) with an annual income of $50,000 and above (according to when the loan is granted) including foreign borrowers who has formerly applied for a loan, regardless if the loan is subsisting, will not be caught under the supply caps.
As a non-native, a foreigner loan is the most suitable and valuable financial assistance you can get in times of an emergency. However, before deciding to get a loan as a foreigner, you need to be prepared to compare your options, so you do not easily fall into the trap of a fraudulent loan that can worsen your financial situation.