Singaporeans seeking a short term loan are often torn between bridging loans and personal loans. But what exactly is the difference between a bridging loan and a regular, personal short term loan?
Well, both financial products are geared toward short term borrowers, but people who choose to get a bridging loan are usually homeowners, as a bridge loan is specifically designed to bridge the gap between receiving the sale proceeds from your old property and paying the down payment on your new property.
Conversely, a regular personal short term loan is typically available to just about anyone and offers a little more flexibility in terms of how it can be used. But how do the likes of interest rates, loan tenure and other particulars compare? Keep reading to discover which loan type might be the best fit for you.
Bridging Loan and Personal Loan Compared (Banks and Moneylenders)
The key difference between these two types of loans is simple. While bridging loans cover the shortfall between selling your previous home and making a down payment on your new house before typical home loans get approved, a personal loan acts as a more simple and flexible short term financing solution.
But there are a number of other important differences between a bridge loan and a personal loan, too. The table below runs through all the basics that you need to know:
| Bridging Loan | Personal Loan | |
| Loan Amount | Bank: Dependent on the value of your previous property Moneylender: Dependent on your sale proceeds or up to six months of your monthly salary | Bank: Up to 10x months of your monthly salary Moneylender: Up to six months of your monthly salary |
| Typical Interest Charges | Bank: 4 to 6% interest rate per annum (Note: EIR will be higher) Moneylender: 1-4% interest rate per month | Bank: 3 to 6% interest rate per annum(Note: EIR will be higher) Moneylender: 1-4% interest rate per month |
| Loan Period / Loan Tenure | Bank: 1 to 6 months on average Moneylender: 1 month or until the property’s completion date | Bank: 12 to 60 months depending on bank loan terms Moneylender: 6 to 12 months |
| Risk Level | Bank: High risk due to collateral involved Moneylender: Low risk; no collateral required | Bank: High risk due to high interest rates Moneylender: Low risk; no collateral required |
| Primary Purpose | To plug the gap between receiving the sales proceeds from your old home and making a down payment on your new property before home loans are approved | Short term loan to be used for whatever financial purpose you please |
| Collateral Required | Bank: Secured against your property Moneylender: Unsecured | Bank and moneylender: N/A, usually unsecured |
Bridging Loan – Good for Bridging Financial Gaps Between Your Old Property and New Home
Bridging loans are the go-to product for borrowers facing one very specific use case – but there are two rather different types of bridging loan you’ll want to be aware of for banks.
Capitalised Interest Bridging Loan
It is aimed at borrowers who wish to pay their home loan first and an interest driven lump sum later to avoid paying for two loans at once.
Simultaneous Repayment Bridging Loan
This type of bridging loan offers lower interest charges, but requires you to pay both loans at the same time.
If you’re in the process of selling your previous property but you haven’t yet received the sales proceeds you need to make the down payment on your new house, or your home loan is yet to be approved, a bridge loan makes perfect sense.
Bridging Loan Pros and Cons
Pros
- Access the cash you need to move home quickly and easily
- Fast to arrange and generally quick to get approved
- Lending criteria is usually flexible
- Potential to borrow up to six times your monthly salary
Cons
- Short repayment period compared to a regular personal loan
- Risk level is higher as you risk losing your home if you default
How and Where to Apply for a Bridging Loan
You’ll most likely need to approach banking giants, such as DBS, POSB, Citibank, OCBC, and UOB; and top licensed moneylenders, such as Bugis Credit to apply for bridging loans in Singapore. Check out the eligibility and documents required on their respective websites for full details.
Personal Loan – Good for Sudden Emergencies and Debt Consolidation
While a bridging loan is specially designed for people moving from their old property into a new property and pursuing a home loan, a regular personal loan is a short term loan that can be used for almost any purpose.
Whether you approach a licensed moneylender or get a loan from a bank, personal loan products are great to get you through unforeseen medical emergencies, home repair or lapses in your regular income. As these kinds of loans can be used in virtually any way possible, the world really is your oyster with a personal loan in Singapore.
Personal Loan Pros and Cons
Pros
- Access cash fast
- Use your moneylender or bank loan for any personal purpose
- You won’t risk losing your home if you opt for an unsecured loan
Cons
- Longer repayment terms for banks means higher accumulated interests
- You may be charged an advance payment fee for banks; moneylenders on the other hand do not charge advance fees.
How and Where to Apply for Personal Loans in Singapore
If you’re looking for a personal loan with great interest rates in Singapore, you have two options – a moneylender loan or a bank loan. You may also apply for personal loans with banking giants and top licensed moneylender mentioned above.
Tips for Borrowers Taking Out a Short Term Loan or Other Financial Products
Before you get a bridging loan, personal loan or pursue any other borrowing-related finance products, you should carefully consider the following:
- Your affordability and ability to repay the loan
- The interest rate on offer and how competitive it is
- What kind of loan period or tenure you require
- What risks you are taking and what a worst-case scenario could look like
- Whether a bridging loan or personal loan is the best fit for your circumstances
Ultimately, it’s up to you to make sure you can manage the monthly payments, interest charges and any other fees you may be responsible for before you sign a loan contract.
We recommend calculating your affordability and getting in touch with your money lender directly to have them explain the terms of their loans to you in a clear and easy-to-understand way before you apply. Find out more on the best available bridging loan in Singapore.
Bridging Loan and Personal Loans Frequently Asked Questions (FAQs)
Is a Bridging Loan the Same as a Personal Loan?
No. While a personal loan can be used for any purpose, a bridging loan is typically used by Singaporeans who are moving house and wish to use their bridging loan to plug a temporary gap in their finances. If you’re looking for low risk loans, licensed moneylenders offer unsecured bridge and personal loans.
What Alternatives to Bridging Loans are Available?
Licensed moneylenders offer some excellent alternatives to a traditional bridging loan, such as personal loan. Under most circumstances, you can borrow up to six times your monthly salary with a competitive interest rate.
Why Do People Use Bridging Loans?
People who get a bridging loan almost always use their bridge loan for the specific purpose of being able to pay a down payment on a new property before the sales proceeds from their old one have cleared.
What is a Personal Loan and How Does it Work?
A personal loan is a type of short-term financing Singaporeans can use to fund any purchase or expense they please. To get one, you’ll need to apply for your loan, sign a loan contract and then make monthly payments over the course of a pre-agreed repayment period.
Are Different Property Types Attract Different Bridging Loan Rates?
With so many different property types in Singapore, it’s important to provide accurate information about your home when requesting a bridging loan quote, as certain property types may affect the amount you can borrow or the rates you’ll ultimately pay.
What is the Temporary Bridging Loan Programme or “TBLP” and Can I Use it When Moving House?
Singapore’s Temporary Bridging Loan Programme, also known as TBLP, is a type of business financing designed to help enterprises in the city-state access working capital. This should not be confused with a bridging loan, which is aimed at home-movers instead.
How Does a Capitalised Interest Bridging Loan Work for Banks?
Unlike simultaneous repayment bridging loans, if you’re taking out a bridging loan that comes with capitalized interest, repayments will only begin after your old property has sold. This means that you will not need to pay for two loans (i.e., your mortgage and your bridging loan) at the same time.
Bridging Loan or Personal Loan – Which is Right for You?
If you’re moving house and need a temporary finance solution to “bridge the gap” between your old and new property, a bridging loan makes perfect sense. Conversely, if you need fast cash in the short-term to spend on any purchase of your choice, a personal loan is probably a better fit than a bridging loan. But before you apply, don’t forget that:
- There are several differences between a bridging loan and a personal loan, and it’s important to fully understand these – as well as your own unique borrowing needs – before you apply.
- Affordability is everything – you’ll need to calculate you can cover the monthly repayments and interest charges before taking out any type of loan.
- Licensed moneylenders typically offer much faster approval times than banks, making moneylenders the best choice for borrowers who need fast cash.
Bugis Credit is among Singapore’s best reliable licensed moneylenders offering fast access to loans of all shapes and sizes. Apply today and get your loan application approved within the day!
