Personal loans – does it have a negative connotation when it comes to mind? Well, it is no surprise that people often associate the word ‘loan’ with poor financial management, but we are here to change that mindset. When used correctly and responsibly, personal loans can be a useful solution to help you take charge of your finances especially during emergencies.
With rising costs of living, we might inevitably stumble upon unexpected situations in life that may require immediate financial assistance. Crises such as medical emergencies would require a sum of cash pronto. In times like this, a personal loan can be a viable option for you.
What are personal loans?
A personal loan is typically a type of unsecured loan that can be customized to fund any of your needs such as your medical bills, home renovation, education, wedding expenses and so on. An unsecured loan means that you are not required to put up any form of collateral to secure funds, which is good news because it means less risk for you. Regardless of your situation, a personal loan can be a viable short-term solution to get access to a sum of cash.
Here are the 3 different types of personal loans in Singapore to help get you started on this journey should you ever require a personal loan.
- Personal installment loan
A personal installment loan, or a term loan, is a sum of money that you can borrow from a bank or licensed moneylender in Singapore. The loan name varies across different banks and moneylenders, but the principle is the same. It is one of the most common and flexible types of personal loans you can find in the market.
A personal installment loan can be repaid in fixed installments, typically up to 60 months, depending on the financial institution, and may include a one-time processing fee ranging from 0% to 10% of the principal amount.
Personal instalment loans are useful in situations such as medical emergencies, in an unforeseen circumstance where a huge sum of money is required.
- Personal line of credit
A personal line of credit is a type of personal loan that allows you to withdraw loans within a credit limit. This loan is often regarded as “standby cash” as there is no repayment penalty and the approval rate is fast.
The financial institution would first determine the limit in which you can borrow from your line of credit. You will only be required to pay interest on the amount and the duration that you have borrowed and are not obliged to pay anything else until you decide to borrow from your lender again.
Unlike a personal loan, the repayment term of a personal line of credit is open-ended and the interest rate can vary. It also comes with an annual processing fee that renews yearly.
- Balance transfer
The third type of personal loan is called a balance transfer. It is used to help reduce interest rates of different loans and is a great option for the borrower to consolidate their outstanding debt into a single account with a fixed interest rate. It provides the borrower with a pre-determined interest-free period that they can use to pay off their existing loans.
Usually, there is a one-time processing fee ranging from 1.5% to 5.5% and up to 12 months for borrowers to pay off their debts without incurring any interests during this period. If there is still balance left after the interest-free period, additional interest fees may be incurred on the remaining payment.
It can be a great way to pay off outstanding debt within a short period if you are confident that your cash flow will improve and that you can repay your debt as soon as possible.