With today’s tough economy, money never seems to be enough. As you look for ways to cushion your standard of living and sort out your financial problems, you might have encountered personal loans. Perhaps you wonder if a personal loan is similar to borrowing money from an acquaintance or family member. The truth is, it is different altogether.
A personal loan in singapore refers to the money you borrow from a bank or lender for your personal use, such as for a family emergency, education, wedding, debt repayment, etc. In essence, you can do whatever you want with the money, whether indulging in desired pleasures or stuffing it under your mattress. The choice is yours! However, overindulging on borrowed money is never a good idea.
If you are considering acquiring a personal loan Singapore, you have to understand that they come in different forms. Below, we break down the four key types of personal loans available in Singapore.
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Personal installment loan
A personal installment loan is a lump sum of money you can borrow from an authorized money lender in Singapore. It is the most common kind of personal loan in the loan sector and is also referred to as a term loan. Depending on the banks or authorized money lenders, it may go by different names, but the basic idea is the same.
When you get a personal installment loan, you should pay it back over a fixed period, typically up to 60 months. It typically includes a one-time processing fee between 0% and 10% of the principal sum. Additionally, rates of interest may differ between banks and authorized money lenders.
Personal installment loans might be helpful when you require a sizeable sum of money to meet an unexpected, high-ticket item. Examples include weddings, home improvements, travel, recreation, and unexpected medical costs.
Balance transfer loan
Balance transfer loans allow you to move your existing debt from many credit card obligations to a single low-interest account or credit line. This type of personal loan is often used to reduce interest payments and help consolidate multiple debts into one manageable bill. For example, it could be challenging to maintain your payments if you don’t pay off the debt on your credit cards in full and are charged an interest rate of 18%.
You can clear off your credit card balance once a month with a balance transfer while taking advantage of a low-interest rate of as little as 0%. In other words, you won’t have to pay interest if you clear the credit card amounts before the balance transfer period expires. A balance transfer is like an interest-free loan, allowing you to manage your debt and monthly repayments better.
The loan term depends on the financial institution. Most lenders provide 6-month and 12-month terms, while a few offer 3-month and 18-month periods. The negative side of a balance transfer is that the balance can snowball if you do not fully pay it by the end of the repayment term. This is due to the interest rate returning to the credit card’s initial interest rate, which may be as high as 30%.
A personal line of credit
A personal line of credit refers to a personal loan that lets you withdraw money whenever you need it. It’s handy, especially when you’re in desperate need of cash and need it fast. However, you can withdraw no more than double your monthly salary from the account.
The drawback is that a personal line of credit comes with an annual cost ranging from S$60 to S$120, depending on the financial institution you’re borrowing from. Additionally, you will be charged interest when you withdraw the money from a traditional bank branch, an ATM, or online banking.
Generally, interest rates for this form of personal loan Singapore vary from 18% to 22% p.a. Interest applies for the entire period you borrow the money, and the lender will stop charging you interest once you have fully repaid the funds. Additionally, it does not have a set length of time for repayment. Therefore, the choice of how long to take to repay the loan is totally up to you. But of course, the faster you repay, the less you’ll spend on repaying.
Debt consolidation loan
With this program, you can consolidate unsecured credit facilities like credit cards and personal loans. This debt restructuring plan can help you combine all of your unsecured credit facilities from different financial institutions into one financial institution at a lower interest rate.
The key distinction between a debt consolidation plan and a balance transfer is that the latter is employed when your debt exceeds 12 times your monthly income. The Debt Consolidation Plan might assist you in better managing your debts in such a circumstance. Once accepted, your unsecured credit lines are closed and merged into a single Debt Consolidation Plan account.
You can then return all your unsecured obligations once a month through the account for up to 10 years. It’s quite helpful, especially if you struggle to repay your unsecured loans to different banks every month. Please note that the Debt Consolidation Plan only applies to loans you take out from Singaporean banks and financial organizations participating in it. Additionally, the program does not allow specific categories of unsecured loans, including the following:
- Credit lines made available for commercial use
- Joint accounts
- Loan for remodeling
- Loan for education
- Healthcare loans
Furthermore, remember that you may only have one active debt consolidation plan at any time. Suppose you find a participating financial institution that offers a debt consolidation plan with lower interest rates after three months. In that case, you can refinance your current plan with that institution.
Always weigh all of your options before applying for a personal loan. Although less expensive than credit card debt, personal loans are still costly. Your annual income and other factors may significantly influence interest rates and the type of personal loan you qualify for.