Personal loans or personal financing, in general, is not something we picked up in school, but it is something that we need to be well aware of. The typical life cycle of the average working adult begins with school, attending primary and secondary, and then, maybe pursuing higher education, before entering the workforce. Oftentimes, student loans are taken to pay for that higher education, which means that we are entering the workforce with debt.
Therefore having a certain level of understanding of the basic of budgeting, saving, debt and investing have an impact on your everyday life and can mean a difference between prosperity and poverty. This is why today we’re going to talk about the fundamentals of personal loans, its advantages, and what is a good reason to get one.
What is a personal loan?
A personal loan is an unsecured or non-collateral loan. Other loans, such as car loans, or housing loans, are earmarked for the purchase of that specific product, which means the house or car you are purchasing acts as the collateral for the loan. Whereas with a personal loan, there are no collaterals required, hence the interchangeable term: unsecured personal loan.
With a personal loan, the lender or bank takes a great risk in lending the money, whereas lesser risk is involved for the borrower. Due to greater risk taken by the lender or bank, this results in higher interest rates on personal loans, and Singapore is no different.
Benefits and advantages of a personal loan
There are a few advantages to taking on a personal loan, we covered some of the basics when we talked about why you might want it as an option. Well here are a couple of other advantages that you might consider.
- Processing is faster
If you’re new to banking, there is A LOT of paperwork involved. Unless you’re applying for a personal loan or credit card. Some banks/moneylenders even grant instant approval loans via their website.
- Helps with your credit portfolio
Personal loans expand your credit portfolio, strange right? Healthy credit is an indication of your responsibilities with money and how well you manage them. Therefore, with a personal loan, and some good habits, you get a better credit score, making it easier for you to qualify for other larger credit lines, like a home loan.
- Use of loan
As you know, loan names correlate with their purpose, home loan to purchase a house, car loan to purchase a car, so on and so forth. Personal loans are just that, personal. There is no one purpose for a personal loan, which means you are not limited by it.
Impact factor of personal loans
There are a few things to consider before you decide to take on any banking product or solution. Primarily having to do with the impact it will have on your personal finances.
Active loans and credit card debt play a huge role in your personal loan prospects. Debts are too high, and you won’t have the capital to pay your loan, making it difficult for you to qualify. So before you apply for a loan, do a rough credit check on your personal finances, can you afford to live after your payments. Remember to include your non-credit card obligations and loans. Take into consideration your Netflix subscription, phone bills, utilities, food, fuel, and everything you need to spend money on. Go ahead and add your hair treatment in as well, it is part of your expenses. These are all expenses that you need to be able to cover outside of your debt.
There are lots of options when it comes to repayment schedules, and they too vary from bank to bank. In some cases you may even be able to choose your repayment plan, however, there are also cases where the bank will decide on how much you borrow against what you can afford to pay. A shorter tenure equals lower interest paid per month, but it will increase your commitments. On the other hand, longer tenures mean more interest paid. So be aware of the potential outcomes before making hasty decisions.
Almost every bank in Singapore offers personal loan products, there are several options available. In the same way, there is an equal amount of education available out there to help you make the right decision for yourself. To see what loans EZ Money offer, check us out here! Alternately, you can speak to using at +65 6220 0822