If you ever find yourself in an unforeseen situation where you require immediate financial assistance – such as a medical emergency or urgent home repair scenario – taking out a personal loan could be reasonable. In fact, one out of ten Singaporeans take out loans to cover daily expenses.
Before selecting what kind of personal loan you will use to achieve a life goal, you need to be familiar with several types of loans. Let’s take a look at how to choose the best personal loan for your needs.
The most popular way to borrow large sums of money is through secured loans. With this type of personal loan, a borrower puts up collateral in order to receive the loan. What is collateral, exactly? This refers to valuable properties or assets such as a house, car, stocks, or bonds. The deeds or titles of these properties will be held by the lender until the borrower repays the loan in full.
Because secured loans are backed by assets, these loans have lower interest rates. However, failure to repay your loan could result in the loss of your assets.
This type of loan is commonly used when borrowing money for a new car or house.
If you don't want to put up an asset as collateral, or you want to fund a project for which a secured personal loan is not appropriate, you might want to look into a type of loan that doesn't require a guarantee.
Unlike a secured loan, an unsecured loan does not require any form of security. Rather than using a borrower's assets as collateral, lenders approve unsecured loans based on borrowers’ creditworthiness. Although the lender cannot seize any property if a borrower defaults on an unsecured loan, these lenders have other options such as hiring a collection agency or taking the borrower to court to recover the loan. As a borrower, you definitely don’t want to default on an unsecured loan, even though you have no assets at stake!
Personal loans, student loans, and credit card transactions are examples of unsecured loans.
A line of credit is quite similar to a credit card – they both have predetermined credit limits, and require borrowers to pay interest on the amount borrowed.
The main difference between the two is that a borrower is not required to pay any additional fees while using their personal line of credit to withdraw cash. A line of credit is ideal for short-term loans because interest rates are often modest, and users can withdraw funds as needed without incurring additional fees. Lines of credit can also be used by enterprises or people that need access to a certain amount of money on a regular basis.
If you have a large amount of debt from multiple sources and you are looking for a way to get it all under control, what are your options? You can consider applying for a debt consolidation loan. With this type of loan, borrowers consolidate their debts to make repayments easier. These loans also have cheaper interest rates than conventional personal loans.
Student loan debt, credit card debt, and other liabilities can all be paid with debt consolidation.
An overdraft is similar to an unsecured loan, except that it is usually linked to your regular bank account. Once your personal funds have been depleted, an overdraft grants you a specific additional amount that you can withdraw from your account. Depending on your bank, you may be charged costs for your overdraft, such as interest and set-up fees.
During a situation in which you don't have enough funds in your account, overdrafts might help you make timely payments and avoid bounced checks. However, overdrafts should only be used in an emergency, or as a temporary solution.
Taking out a personal loan of any kind comes with its own set of hazards. These loans may give instant financial aid, but they also include corresponding interest payments. Make sure the loan you’re getting is within your means to repay, and ensure that you're dealing with a reputable organisation before applying for a loan.
Getting a loan at Friday Finance is as relaxed as going through the last working day of the week. We are an experienced and licensed moneylender, providing flexible payment options to fit your income patterns. These options allow you to attain your financial goals in the most comfortable manner possible. Are you ready to move toward these goals today? Contact us now!
For additional insights on loans and budgeting, see our articles on understanding interest rates on your loans and how to budget your paycheck.
