Springboard towards your financial goals December 5, 2022
When facing certain life events, planned or unplanned, there might come a time where you might need a larger sum of cash than what you actually have in the bank. This need might arise from the purchase of an investment property, maintenance and renovation expenses, or an emergency medical situation.
Meeting these urgent needs by liquidating your investment assets might derail the timeline you have mapped out to achieve your long-term financial goals. Therefore, a better solution could be to pledge your investment assets as collateral and take up a secured cash loan.
Pledging collateral for a secured cash loan
Most investments require a certain length of time or investment horizon before they can potentially achieve the desired returns or outcome. Prematurely terminating your long-term investments, i.e. stocks, unit trusts or insurance policies to meet short-term cash needs might be detrimental to your longer-term goals.
Pledging your investments as collateral for a cash loan will provide you with the flexibility of staying invested while meeting your short-term cash needs. Since the pledged collaterals are still invested, you will continue to benefit from the potential upsides, dividends and payoffs. This will give you freedom to better plan and meet your longer term investment objectives.
Total Debt Servicing Ratio (TDSR) restrictions
In Singapore, TDSR refers to the portion of a borrower’s gross monthly income that goes into repaying monthly debt obligations. This ratio should be less than or equal to 55% of your income. Common debt obligations include housing loans, car loans, credit card loans, etc.
By taking secured cash loans through our entity within PhillipCapital, borrowers are not subjected to the TDSR. Essentially this means that, any loan amount taken through us will not be restricted by this threshold nor will your TDSR increase when you take up other loans or refinance existing loans with banks.
Successful use case scenario:
Mr Tan works in a listed company and has a significant amount of wealth in the form of stock holdings of the company he works for. He wishes to purchase an investment property. However, he does not want to sell off his holdings as he is still working for the company, he sees return potential in retaining his stock for a longer period of time. When applying for bank loans, he faced numerous difficulties as loans are subjected to the TDSR, affecting his ability to refinance his existing mortgage loan.
He eventually decided to pledge his stocks with PhillipCapital and took up a secured cash loan instead. In this case, he is not subjected to the TDSR. As such, he successfully refinanced his mortgage loans at his desired amount, with his bank.
Achieve your financial goals!
In conclusion, using pledged collaterals to finance your short-term financial needs will allow you to stay invested for the longer term. With all that is happening on the global stage, uncertainty and volatility have filled the market. Therefore, we would advise investors against liquidating your assets and investments, and stay invested instead.
It is also crucial not to take on risks that exceed your means. Market conditions can change rapidly. Interest rates are also on the rise. Needless to say, all investments come with their own set of risks. Therefore, we advise all investors to always proceed with caution and to seek professional advice when needed.
Do reach out to us if you have any enquiries or if you are looking for any financing solutions. You can email us at firstname.lastname@example.org
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About the author
Kenny Teo is a Loan Specialist with Phillip Credit Pte Ltd.