Have you ever cut corners in planning a wedding or shied away from revamping for home interiors because of shortcomings in your budget? You can always look towards personal loans to fill the void without risking high-interest rates or heavy collaterals against it.
An unsecured personal loan is a reliable solution to your cash crunch. The eligibility depends on your credit score, debt-to-income ratio, and your income itself. Everyone cannot afford a personal loan, and people should spend the money wisely.
Like with other loans, personal loans also have their fair share of disadvantages along with the benefits. Before observing all the pros and cons, we need a deeper understanding of how a personal loan works.
Know more about Personal Loans
The salient feature of a personal loan is that it is unsecured, which means you do not need to submit collateral to secure the installment. You receive a fixed amount of money based on a minimum requirement or your monthly income. The repayment duration can be anywhere between one to 10 years.
Borrowers have the liberty to use the loan for any personal requirement, although some lenders specify special requirements or restrictions. The interest rate remains fixed, so you do not need to pay a variable sum of money while repaying.
Applying for Personal Loans
The application procedure for a personal loan is similar to a credit card. You need to submit your personal information, contact details, along with financial statements and desirable loan amount. The lender reviews your profile and checks your credit score.
The final verdict of approving the loan lies with the creditors. If your application and finances convince them, you will receive the installment. The lenders ascertain the interest rate, final loan amount and terms following the approval process.
How much personal loan can you borrow?
The Monetary Authority of Singapore (MAS) implements the limitations on installment amounts to ensure borrowers do not overextend their means. The current limit is 12 times your monthly salary. However, you can borrow amounts as low as $500 from the institutes.
When can you start paying back the loan?
You will hear people talk about living debt-free as a wonderful feeling. You can start your loan repayment immediately after receiving the lump sum amount from the creditor. Every month you will pay the same amount of money as an instalment. It includes a part of the principal amount with interest added to it.
Notable Benefits of Personal Loans
Now that we are familiar with the application process and the features of personal loans, here are the noteworthy advantages of personal loans over other available options –
- Low-interest rates
The interest rate levied on personal loans varies from 3.5% to 10.8% per annum. Nevertheless, it is significantly lower than the rate charged on credit card amounts, which can be as high as 25.9% per annum.
- High borrowing limits
You can borrow anywhere between $500 to 6 times your monthly salary for an unsecured loan amount. Borrowers receive a lump sum to a preferred bank account and repay the same in installments over tenure. Different banks offer unique schemes based on your financial statements and requirements.
- Multipurpose
Personal loans are flexible and versatile in utility. Financial institutions do not limit how you plan on using the money. For instance, you need to declare your college education details and academic records for a student loan or buy a car if you borrow a car loan. You can use the disbursed amount to pay off debts or medical bills as you deem necessary. Although, it is best to check with your lender for approved uses for the loan amount.
- Absence of collateral
The thought of putting up valuable assets for collateral often dissuades people from loan applications. However, you do not need to mortgage your house and put up your car to secure a personal loan. Failing to repay the amount in the pre-estimated duration warrants financial consequences, but you will not lose your assets for it.
- Manageable
Personal loans are a better alternative than managing multiple credit card loans. You can pay off your debts using a single loan amount and manage only one account for monthly payments. Moreover, you will save money for lower interest rates.
Drawbacks of personal loans
While personal loans are convenient and the bank offers lucrative schemes for their borrowers, it comes at a cost. They add to your debt and do not resolve the cause in any way. Over-spenders may fall prey to higher charges and the burden of monthly installments.
Here are some of the drawbacks of personal loans –
- Not the best option in the market
While personal loans are a superior option to credit card bills, it is not the ideal one. The addition of processing fees determines the effective interest rate on loan. Most of the schemes you will come across will have rates ranging between 7% to 10% p.a.
- Processing fee
Banks and other lenders charge a processing fee ranging from 1% to 3% on the loan amount.
- Early repayment fee
Ironically, you may incur an extra charge for settling the amount before your tenure elapses or if you cancel the loan. The charge varies from around $100 to $250, depending on your lender.
- Higher payments than credit cards
You have the option of the minimum monthly payment and the absence of a credit card bills deadline. Personal loans require a mandatory monthly payment until the end of the loan term. Hence, consolidation of credit card debt results in higher monthly payments with a payoff timeline.
Which is the best-licensed money lender in Singapore?
The Ministry of Law in Singapore approves the registered money lenders from where you can safely apply for a personal loan. Here are some of the leading firms you may lookup –
- Crawfort Pte Ltd
- Credit 21 Pte. Ltd.
- Lending Bee Pte. Ltd.
- GS Credit Pte. Ltd.
- Katong Credit Pte. Ltd.
- Horizon Credit Pte. Ltd.
Apart from money lenders, you may also approach national and international banks like Citibank, Standard Chartered, CIMB, DBS, and POSB for their loan schemes.
There are both advantages and disadvantages to personal loans. Hence, thorough planning is crucial for your budgeting and repayment timeline. Obtain quotes from different lenders, compare them, and choose the best scheme suited to your needs.