Planning to apply for a personal loan to fund your goals? You’re not alone. In the first quarter of 2021, the average personal loans for those under the age of 30 increased by approximately 23%, according to the Credit Bureau Singapore data.
While most Singaporeans turned to personal loans for big-ticket items, more and more are using the payouts to fund everyday essentials. Another reason why borrowers sought personal loans is to finance their start-up business. That said, personal loans have become viable options when you need a large lump sum for your personal needs.
However, the Credit Association of Singapore still advises the public to be smart when borrowing because a personal loan – just like any type of credit – is a liability. As such, loans must only be used to finance important things, such as medical expenses, home improvement, and debt consolidation.
But First, What Is a Personal Loan?
Personal loans are usually a type of unsecured loan so you don’t need collateral. It is repaid in monthly payments together with applicable interest. You can take out a personal loan with a bank, legal money lender, or other financial institution. To qualify, most lenders, especially banks, will take a look at your credit history to evaluate your creditworthiness.
Aside from banks, personal loans offered by legal money lenders in Singapore are also a viable option. With these lenders, you can borrow any amount for secured loans. For an unsecured personal loan, you can borrow the following:
| Borrower’s annual income | Singapore Citizens and Permanent Residents | Foreigners residing in Singapore |
|---|---|---|
| Less than $10,000 | $3,000 | $500 |
| At least $10,000 and less than $20,000 | $3,000 | |
| At least $20,000 | 6 times monthly income | 6 times monthly income |
(source: Ministry of Law)
Personal loans are disbursed in a lump sum and can be used for any personal circumstances. Let’s take a look at the top reasons for getting a personal loan.
Debt Consolidation
Debt consolidation is one of the most common reasons for taking out a personal loan.
Let’s say you are currently facing a large credit card debt from several of your card lines or when you are distressed about not being able to pay back these debts. You can settle these payments all at once with a personal loan. Doing so will help you save up on huge rates of interest.
Benefits of Using a Personal Loan for Debt Consolidation:
- Personal loans typically charge lower interest rates compared to credit cards.
- It will help you extend your repayment term which will in turn lower your monthly payments.
- By consolidating your debt, you will only have to keep up with one repayment schedule instead of multiple due dates.
- Lastly, it will help free up more of your income so you can use it for other essential expenses.
How To Use a Personal Loan for Debt Consolidation
Apply for a personal loan to pay off high-interest debt. As such, you need to take a look at all your existing credit and figure out which ones have the highest interest and pay them off first. Additionally, make sure that you are taking a personal loan with a lower interest rate than your existing credit lines.
Lastly, ensure that you have put a reminder on the due date of the loan. Doing so means you cannot miss the loan due to the date scheduled.
Home Improvement
If you’re planning to upgrade the look of your home, a personal loan will help finance such a project. You can also use the funds for unexpected home repairs, such as fixing a leaking pipe or broken air conditioning system. In these scenarios, a personal loan can quickly provide you with the lump sum you need.
Benefits of Using a Personal Loan for Home Improvement:
- You don’t have to put your home as collateral. Unlike Home Equity Loans or HELOC, personal loans are unsecured loans.
- Use the funds to finance small or midsize home remodeling projects.
- Fast approvals and flexible use of funds
How To Use a Personal Loan for Home Improvement
Instead of applying for a home equity loan or HELOC where you have to put your property as collateral, you can apply for personal loans. With this option, you can quickly receive the money needed for unexpected home repairs or planned remodeling projects. When you apply with a licensed money lender, you can get the payouts as quickly as the same day of application.
Major Purchases
Another common reason for taking out a personal loan is to finance a large-ticket purchase. You can use a personal loan to purchase:
- A new television
- New washer and dryer or other household appliances
- New furniture
- Fund your wedding costs, such as wedding rings, attire, and catering
But can I use a credit card loan instead of a personal loan?
Most credit cards have one particular feature, which is their loan – also known as a cash advance. With this feature, you can take out a specific amount and it is taken out from your credit card limit. It offers access to instant money. However, it comes at a cost. Keep in mind that the funds you have taken out may be charged some handling fees in addition to the incurred loan cost.
Plus, interest on the credit card loan or cash advance is charged each day until the whole sum is completely settled. As such, it is better to make use of a personal loan that has low-interest costs. Personal loans provided by money lenders in Singapore have lending costs capped at 4% per month.
Benefits of Using a Personal Loan for Major Purchases:
- The personal loan amount can cover large purchases for a one-time payment.
- Personal loans have lower interest rates compared to major credit cards
- With this loan, you can get new appliances or furniture as soon as you need them.
How To Use a Personal Loan for Major Purchases
Be smart in using personal loans for your needs. Spend only on essential items and not on impulse purchases. Remember, personal loans are a liability which means you’ll need to repay them in monthly installments. Failing to make repayments can lead to high penalty fees, such as late fees and late interest.
Medical Expenses
Many people are unprepared when it comes to unexpected medical emergencies. This disrupts your financial plans and will also affect your working budget. When you suddenly have a situation in which medical emergencies jeopardize your financial status. Thus, a personal loan will be the ideal and reliable approach for you.
This is especially true if you don’t have health insurance. Even a minor medical emergency can leave you with a significant bill amount.
Benefits of Using a Personal Loan for Medical Expenses
- Pay your doctor in full with the payouts from a personal loan
- After deducting your health insurance coverage, you can use personal loans to cover the excess amount.
- The fast approval and same-day disbursement means you can get out of the hospital faster, so you will avoid incurring additional hospital bills.
How To Use a Personal Loan for Medical Expenses
You can use a personal loan to pay for various medical expenses:
- Emergency room and urgent care visits
- Ambulance or air transport charges
- Injuries due to accidents
- Treatment and medicine costs when a family member falls ill
You can also use personal loans to cover medical care for your pets. For instance, if your cat needs emergency surgery, you can take out a loan to pay the vet.
Emergency Expenses
Aside from debt consolidation, home improvements, and medical expenses, you can also use personal loans as a source of emergency cash assistance. This means using the payouts for anything that needs immediate attention, such as mounting utility bills.
Personal loans are also a good alternative to payday loans, which are short-term loans that must be paid in full on your next payday. With a personal loan, you may borrow money up to 6x your monthly income with flexible repayment terms of up to 12 months.
Benefits of Using a Personal Loan for Emergency Expenses
- Most legal lenders in Singapore provide same day approval service. Plus, once your loan is approved, you will receive the loan amount within the same day.
- Personal loans are very flexible and can be used for anything that will help your personal circumstances.
- You can use the lump sum to pay off immediate needs and free up some of your income for other necessities.
How To Use a Personal Loan for Emergency Expenses
You can use personal loans to cover for:
- Past-due utilities and other home payments
- Unexpected car repair
- Unforeseen interruption of your source of income
- Emergency fund to cover day-to-day living expenses
Considerations for Getting a Personal Loan
Personal loans can be used to settle bills, buy wedding bands, or even make home renovations. It is adaptable and multi-purpose. Even so, you need to be careful when choosing the right personal loan.
Before you start shopping for the best personal loan plans, here are a few things to consider:
- Can you afford the monthly payment? While a personal loan can provide you with quick cash, you still need to repay it. So before you apply, make sure that you can comfortably afford the repayments.
- Do you really need it? Avoid taking out a personal loan for unnecessary things, such as impulse purchases. Take out a personal loan only when you need the funds in the immediate future.
- Is the interest rate affordable? Take your time comparing personal loan plans from various lenders. Choose a loan plan with affordable interest rates and flexible terms.
- Do you fully understand the fees and conditions of the loan? Legal moneylenders in Singapore are required to thoroughly explain the loan details. Plus, the penalty fees that legal lenders can charge are capped.
- Have you exhausted all your options? Before engaging with a bank or licensed money lender, consider other options first. For instance, you can consider borrowing money from family or friends.
FAQs
1. What Is the Best Reason To Use To Get a Loan?
Most financial issues around loans occur due to borrowing cash on senseless grounds. There are various reasons to take out a loan, but not all of them are legitimate reasons.
For instance, impulse buying is not thought of as a good reason for loans. Since it implies that you may end up buying something you do not truly need later. That said, take out a loan only when you really need it, such as for medical emergencies and unexpected essential expenses.
2. What Is a Good Reason To Tell the Bank for a Personal Loan?
While you don’t need to specify where you will use the personal loan, banks are known to have strict eligibility criteria. This means they will take a look at your credit history in evaluating your application. If you have a bad credit score, your application will have a higher risk of getting rejected – no matter how good your reason is.
Thankfully, you can look to licensed money lenders for personal loans. These lenders will not put much weight on your credit score. Instead, they will look at your income level and overall financial situation. Plus, they can provide fast cash disbursement, perfect for emergency situations.
Conclusion
Personal loans are pretty straightforward and are usually not hard to get. However, just because you can doesn’t mean you should keep taking out a loan since this will lead to credit buildup. Choose credible and licensed moneylenders in Singapore to find a plan that suits your financial needs.
Key Takeaways
- Personal loans are usually a type of unsecured loan and are repaid in monthly payments together with applicable interest.
- Aside from banks, personal loans offered by legal money lenders in Singapore are also a viable option.
- With a personal loan, you may borrow up to 6x your monthly income with flexible repayment terms of up to 12 months.
- You can use personal loans for any of your personal needs, such as debt consolidation, home improvement, medical expenses, and emergency expenses.
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