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Personal Installment Loans vs Personal Line of Credit: How Should You Choose?

When you are in desperate need of funds, there are many choices to choose from that would help you get the money at record time. If you are in Singapore, you can avail a personal loan from banks, moneylender firms, credit unions and other credited institutions to get your funds immediately.

However, there are at least four different types of personal loans available in Singapore and if this is your first time to apply for a personal loan, it can be confusing to decide which one to get.

So, what are these loans?

Personal Loans Available In Singapore

The four types of loans available in Singapore are as follows:

  • Personal instalment loans
  • Balance Transfers
  • Personal lines of credit
  • Debt Consolidation Loans

Both personal credit lines and personal installment loans can be used for anything you need money for like medical fees, expenses, school fees and the like. If you have an inconsistent income, getting a personal line of credit loan is advisable.

On the other hand, both balance transfers and debt consolidation can only be requested if you are paying off debts like credit cards or personal loans.

Usually, many people use personal installment loans or personal lines of credit to get funds for their needs. However, how do both types of personal loans work?

Personal Installment Loans: How does it work?

As the name implies, personal installment loans are loans that you pay in installments with its amount equal to the other over a certain period of time. Usually, the installment amount and the payment duration are predetermined, but there are some moneylenders or credit unions that may enable you to choose your terms and payment options.

There are some pros and cons in utilizing personal installment loans and they are as follows:

Pros

  1. Easy installment payments
    One of the many reasons installment loans are preferred by many is because you do not have to worry about high installment payments. Since the amount is reduced to a manageable level and you have a long time to pay for it, you can adjust your budget to accommodate it.
  2. Helps You with Investments
    Since installment payments are small, you do not have to worry about paying high interests. You can use your extra savings from your installments or from your actual savings to invest on a stock market or other fund programs that would have higher returns in the future. When you diligently follow up on payments, you would be able to earn more than you spend paying interests.
  3. Lower borrowing cost
    Although you are borrowing a large sum, you are going to pay it for a long period of time. As a result, the interest rate is lower and you are only paying a small amount per month.
  4. Fixed payment
    Since the loan is fixed in terms of how much you need to pay every month and its interest rate, you do not have to worry about the monthly blowing to a huge amount.

Cons

  1. Strict Approval Requirements
    Before you can get a personal installment loan, you would be background-checked by the loan providers. From your credit score, sources of income to your capacity to your personal details, everything would be checked. If the loan provider spots something, you would not be able to get the loan at all.
  2. Early payments are not allowed
    If you are able to collect extra money to pay for your loans, you would not be able to pay in advance. Some loan providers do not encourage it because you would just incur a penalty for early closure of loans. There are some loan providers that do allow pre-closure without any penalty but it is not often discussed.

Personal Lines of Credit: How does it work?

On the other hand, personal line of credit is a loan that works like a credit card. In this case, when the moneylender approves your application, they will give you the full amount at once then you only pay the interest of the amount you actually used. You have the option to get the entire amount you borrowed or get it in increments. Some loan providers send the funds through electronic transfer, cash or check.

When you wish to pay for your loan, the payment is similar to how you pay for a credit card. After a month when you borrowed, you will need to pay a minimum amount to pay your dues.

There are several ups and downs when using this personal loan type and here they are as follows:

Pros

  1. Low-interest rates
    Like other personal loans, personal line of credit loans has lower interest rates. You don’t even have to pay it until you need the full amount you borrowed.
  2. Helps you control your budget
    Since it is similar to paying a credit card, you would be able to budget your payments for it every month due to its low amount.
  3. Readily available
    When you have this loan active, you can easily use the line as a source for quick funds and you can withdraw whenever you need it.

Cons

  1. Annual fee
    Some personal lines of credit loans come with annual fees which is still charged unto clients even if they are not used.
  2. Overspending risks
    Since it is readily available, you may be at risk in overspending the funds even if you do not need it yet.
  3. Strict Requirements
    If you have a poor credit rating or if your finances are not stable, you will be unable to get an approval for this loan.

Final Remarks

Before you rush off to a moneylender or a credit union to file a personal loan application, it is important you find out first if you truly need one. Even if you are in desperate need of funds, there may be another way to fund your expenses or sudden need.

If personal loans are what you need, remember to research what works well for you. It would not be prudent to just pick randomly on what type of loan you should get because not all loans have the same monthly repayment rate and interest rate.

You may end up paying more than what you actually borrowed.

About the author

    Kally