Over the years, you would probably come across various stories of how sky high interest and snowballing debts from loans have crippled individuals. The media has likely warned you of the dangers of taking loans, encouraging you to look for alternative sources of finance. If so, this information has probably painted the industry in a bad light, one that is out to corner and swindle you of your future. Yet, with a better understanding of the industry and how to pick the right product for yourself, you can avoid many common missteps while securing yourself a loan with reasonable terms.
The purpose of this article is to cover the various types of personal loans and their differences. However, before we start, it is important to note that you should only approach a licensed money lender as they abide by the regulations set by the Registry of Moneylenders, which were designed to protect you, the borrower.
Personal Loan in Singapore
This is a type of unsecured loan. Personal loans do not require collateral such as your home or car, and can be used for any purpose. However, in turn, a higher rate of interest is usually attached to the loan as a reflection of the higher amount of risk that the lender takes on.
Fixed Interest Rate
As the name suggests, the interest charged in this type of loan is constant through all periods in the loan. Where it is foreseeable that interest rates are likely to increase in future periods, this type of personal loan will require the lowest amount of interest payments.
Variable Interest Rate
In direct contrast to fixed interest, variable interest rate loans vary based on market interest rate. Hence, it favour the borrower when interest rates decline in future periods. When considering this type of loan, it is important to take into account the total length of the loan as this directly impacts the level of uncertainty on forecasting future interest rates.
Instalment Loans
Instalment Loans, also known as term loans, are often taken out by borrowers for the purchase of a specific item or for debt consolidation. It involves the payment of equal periodic sums over the established period, thus utilising fixed interest rates. While this type of loan is beneficial for one-time expenses, you should be wary of the prevailing interest rates, as they tend to be higher for instalment loans.
Revolving Loans
Better known as lines of credit, revolving loans allow you to borrow up to the credit limit given and can be utilised at any time. This limit is renewed each time you pay the amount owed, thus making it more suitable for recurring expenses such as tuition fees or on-going medical treatments. Due to the flexible and longer outlook of this type of loan, it generally carries variable interest rates.
Payday Loans
Also widely known as cash advance loans, lenders offer very short term loans to you while requiring higher interest rates. These types of loans can be particularly tricky as borrowers often fall into the trap of repeatedly taking out new payday loans to cover their past cash advances. Thorough research and consultation should be attained before taking out this type of loan.
The categories covered in this article are the most common and generic types of personal loans available. However, more specific loans such as home or car loans exist in Singapore, and should be heavily considered. Where the financial institution is given the precise use of the loan, they are likely to have more confidence in your repayment ability and thus will offer a more favourable interest rate.
Still unsure or keen to find out more on the right type of loan for you? Then do get in touch with a licensed money lender in Singapore today. With adequate understanding on loans and a trustworthy money leader, personal loans can be an asset rather than a liability.