4 Reasons to Get a Personal Loan: Benefits and Things to Consider
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Many people believe that any form of borrowing money is a bad move. But the truth is that getting a personal loan has benefits. Used wisely, an unsecured personal loan can be a smart move, depending on your situation.
Capital Funds Investments shares what you need to know about personal loans and the potential benefits of getting one.
A personal loan is an instalment loan that gives you a lump sum of money. You can use the funds for any purpose, although some lenders can impose restrictions. The interest rates on personal loans are often fixed, meaning they won’t change as you pay back the loan, unless you decide to refinance.
Most personal loans are unsecured, which means you don’t have to use collateral to get the money. This lowers the risk of getting a loan since you’re not tying your debt to your personal asset.
Flexibility is the biggest benefit of getting a personal loan, but there are other advantages as well.
Personal loans are more generous when it comes to borrowing limits, compared to credit cards. For those below 55 years old, the credit card limit is four times your monthly income if you earn more than S$30,000 a year. On the other hand, the borrowing limit of unsecured personal loans is 12 times your monthly income, as imposed by the Monetary Authority of Singapore.
Keep in mind that the amount you can borrow still depends on various factors. Credit score, debt-to-income ratio, and income and employment history are some of the most commonly considered factors.
Another benefit of personal loans is the repayment schedule. Once your loan is approved, you’ll learn how much you’ll need to pay each month and how many monthly payments you’ll make until the end of the loan term.
These pieces of information make personal loans more manageable since you know how much you need to prepare each month. On the other hand, revolving credit lines aren’t as predictable. The minimum monthly payment depends on your credit utilisation.
With personal loans, you’ll also know your total interest cost over the life of the loan.
It’s possible to get lower interest rates with personal loans compared to credit cards. As long as you have a good credit score and repayment history, some lenders will let you negotiate for a lower interest rate.
In Singapore, the interest rates for personal loans range from 11 to 14 percent, although they can get as low as 10 percent, depending on the borrower. The average interest rate for credit cards, on the other hand, is 25 percent.
A personal loan can also help improve your credit score. As long as you make your payments on time and in full, you’ll be able to improve your credit history.
Plus, an installment personal loan helps with your credit mix. Having different types of loans often benefits your score, since it shows that you can handle multiple types of loans.
Of course, make sure to read the loan contract thoroughly before signing anything. Evaluate your financial situation and repaying capability to judge whether you can abide by the terms. Lastly, look for a reputable lender to make sure you’re getting favorable loan terms.
Authorised by Singapore’s Ministry of Law, Capital Funds Investments provides personal loans fast. We tailor our loans to suit your financial needs, whether you need money to tide you over during an emergency or to make a major purchase.
Contact us today to get a loan customised just for you.