You may be thinking of taking out a personal loan to help you cope. This loan amount should help you handle some urgent financial commitment. Or it may be for making some big purchase. Some of which may be paying for a wedding. It could also be paying for a vacation or even financial emergencies.
As you consider making use of any personal loan. The entire process may seem rather confusing. Even then, there are several things you need to know. That is before you get a personal loan from a licensed moneylender.
Look At The Entire Loan Package
Do not blindly accept the lowest promotional rates offered(at times, they are 0%). Realize that there is more to promotional rates of interests. They usually will come with additional costs. This may include:
- Early settlement fees. For when you repay the term loan ahead of its due period
- Processing charges
- Stepped-up rates once the promotional time period is over
- The requirement to have insurance coverage for the loan
Know The Difference Between Term Loans And Revolving Loans
There are two forms of personal loans offered by licensed moneylenders. That is a revolving loan and the term loan. This is why there loans that have 1,3, 5 or even 7-year term. At the same time, they have fixed installment repayments. While the other loans do not have these.
The revolving loans come as some sort of credit line or overdraft. You can then draw any loan amounts totaling a set maximum limit. From this, you may only pay interest provided that line of credit is drawn.
Once you repay the loan amount drawn. Credit is made available for you again to draw. Since the rates of interest charged on revolving loans are oftentimes higher. When compared to those on term loans. It is then advisable that you utilize it sparingly. Only when it is absolutely needed.
The term loans are provided for a specific ‘term’. This may be for 5 years, or 7 years. During which you will need to make regular payments. Mostly fixed installments for the time period of your personal loan.
Each fixed installment payment covers both interest costs. As well as principal repayment of the loan. This loan type is normally used for a particular big-ticket cost. Reason for this is the loan is flexible compared to the revolving loan. This is when you consider the repayment schedules and loan tenure. At the same time, rates of interest charged are affordable.
Remember that the ‘balance transfers’, and unsolicited cheques from your banks. These are revolving loans that normally eat into the credit card limit. Therefore, use these loan options carefully.
Compare Personal Loan Interest Rates To Other Specific Loan Types
A personal loan can be utilized for many purposes. This loan type is also more costly than other specified loans. These may be for purposes such as the:
- Car Loans
- Home Loans
- Education Loans
- Renovation Loans
Consider the Effective Interest and Applied Interest Rates
There are two types of interest rates charged on loan. One of which is almost twice the amount of the other. Therefore, you will need to take this rates into account. More so as you consider taking out a loan.
The advertised rate is usually a lower applied rate of interest (AIR). This will reach between 7-15 percent per year.
On the other hand, the effective rate (EIR) reflects the real cost of borrowing that loan. When you consider if a flat rate cost of interest is charged. This is upfront on your full loan amount taken. Or if it is included on the loan reducing balance when it is repaid down.
By using the monthly rest technique of working out the interest. Then the EIR and AIR are equal. The reason being the interest is computed depending on the loan’s reduced balance.
The EIR will factor in the repayments frequency. Also if the installments are in equal for each month. For instance, a 1-year term personal loan will have a higher EIR. That is when repayments are made monthly. But when a one-off repayment at the end of the year is made the rate is lower.
Therefore, always ask about and look at the EIR. Particularly as you compare rates charged on personal loans.
Why Take a Personal Loan
In most cases, personal loans are very helpful to most Singaporeans. Actually, many people have been able to invest. As well as grow themselves by using personal loans. Few have bought property, paid for higher education. While others have repaid their pending bills and more. However, you need to always use your loan properly.
By considering the mentioned elements of a loan. You will be better placed in identifying the right personal loan for you. From this, you can better plan your finances to meet the loan repayment.
Even then, you need to be cautious as you seek for a suitable personal loan. Always make sure you deal with a legal moneylender. The lender you choose needs to be ready to work with you. They should also understand your financial needs. At the same time, offer you a favorable loan deal.
Another important factor that borrowers need to focus on is the loan purpose. By being clear as to why you need the loan money. You will be able to discuss with the moneylender choose.
In the end, you will also get the suitable loan option. You will also be able to get suitable repayment loan schedules. This will ensure that you get convenient repayment plan. Your loan rates will also be affordable depending on your financial standing.
As you consider taking out a personal loan in Singapore. There are several things you will need to take into account. You should be able to tell the difference between revolving loans and the term loans.
Also, find out about the details of the loans package. Thus do not simply accept the lowest promotional rates offerings. Always compare personal loans interest rate to other specific loan types. Then look at the EIR and AIR charged.