Benefits & Disadvantages Of Personal Loans That You Should Know About
by Editorial • November 9, 2021
But everything in this universe comes with perks and cons. So yes, when you take a loan, you will have some benefits, and there will be drawbacks too.
Now the question is, what benefits will you get from a personal loan? Is getting a loan a bad thing? Will it be the same as applying for a home mortgage loan?
More importantly, what are the shortcomings we may have to face if we go down that path? It will be better to prepare yourself beforehand.
Well, let’s discuss both sides of the coin, shall we?
What Is A Personal Loan, & How Does It Work?
A personal loan is an installment loan that provides a fixed amount of money. And the most amazing part is that you can use it for any purpose you want. Unlike the Car or Home Renovation Loan, you have the freedom to spend the money on whichever you need.
When it comes to repayment, the interest rate will be fixed. While the application process is similar to that of credit cards, the final cost and interest rates are totally different. Unless you can repay your monthly credit card bill on time, you will likely be swamped with high credit card interest rates and drown in debt.
As personal loans offer a fixed repayment plan, it ensures a lower and more affordable interest.
If your personal loan application gets approved, you can borrow from $1,000 to $50,000, depending on your credit history and your income. Find out how much you can borrow here.
To apply for a personal loan via Singpass, click here.
Just like the dark side of the Moon, getting a personal loan also has some drawbacks. Hence, now it is time for us to know everything about this scheme to stay prepared if you are thinking about going for it.
Benefits & Disadvantages Of Personal Loans
Finally, we are here where we will get to know every tiny detail about personal loans. So let’s learn about the benefits and disadvantages of this deal, shall we?
Benefits of Personal Loans
If we take a good look, we will see tons of benefits of personal loans. Here are some of them that will allow you to understand its potential.
Imagine this, when you take a home renovation loan in Singapore, you will only be able to spend the money on your home renovation. You can only spend that money on modifying your house; you cannot use that for buying a car or for your next travel.
But personal loans are quite different from that.
Once you take a loan, it doesn’t matter where you’re spending your money. You can use that amount to buy jewellery, invest, or pay off your credit card bills. Isn’t that helpful?
2. Lower Interest Rates
One of the greatest advantages of getting a personal loan is that the interest rate is fixed. It won’t increase over time, and the amount is lower than the credit card’s interest rate.
The average interest rate of a personal loan is around 1-4%/month. On the other hand, credit cards have an annual interest rate of at least 25%. While both are large numbers, the difference is that credit cards often snowballs, meaning that interest will be charged on the remaining sum every month.
Therefore, if you are thinking about getting ample money to solve a financial issue, you should go for a personal loan instead of any other method.
You can get multiple personal loan quotes when you apply via Singpass here.
3. Easy To Secure
Yes, personal loans are easy to avail in Singapore; you don’t have to go through any hectic procedure. Furthermore, the process doesn’t require complicated documentation, which is a relief.
Many banks and financial institutions in Singapore allow you to apply online, and you will be done with the whole process in 3-5 minutes. Well, if it doesn’t seem user-friendly to you, what will?
4. Helps To Make Your Credit Score Better
If you have a poor credit score, getting a small personal loan can help you in the long run. It sounds unbelievable but it is true.
When you pay the installments on time, your credit score will be improved. This is because your payment records will show lenders how reliable and trustworthy you are.
In this way, you can get a larger amount in the future without any trouble.
5. Doesn’t Require Collateral
Yes, applying for a personal loan doesn’t require any collateral. Personal loans are unsecured loans.
You don’t have to mortgage your house or automobile as a guarantee. And this term makes this procedure more lucrative than it already is.
However, if you fail to pay the installments, there will be late payment charges. But it won’t leave you homeless, which is comforting.
Read to apply for a personal loan? Our application only takes 3 minutes and cash can be disbursed on the same day! Apply easily here!
Disadvantages Of Personal Loans
Now it is time for us to introduce you to the disadvantage of this system. Don’t worry; there aren’t many cons, so just relax and go through the section below.
1. Interest Rates Can be Higher
Sometimes the interest rate can be higher compared to the other options. You may have to face this situation, especially when you have poor credit records.
Banks might be able to offer lower interest rates depending on your credit score, but banks will take several days to process your application.
2. Penalties Can Be High
Yes, if you miss your monthly loan repayment, there will be late charges.
However, from 1 October 2015, private financial institutions are not allowed to charge a late fee of more than $60/month of late repayment.
When you are late for your monthly repayment, your credit score will also be affected. With continuous poor repayment, your credit score will drop and suffer.
Therefore, before applying for a personal loan, make sure to check every term and condition carefully. Think carefully and consider how you can repay the loan. Otherwise, you will end up having a deal that you cannot handle.
3. Can Increase Your Debt
One of the main reasons for availing of a personal loan is to get rid of debts. Either it is a credit card debt or any other bills, you can solve that issue with the loan money and keep paying that off from your regular income.
However, we can’t really predict the future, to be honest. Suppose you have used your loan money to invest in a business opportunity, and it turned to be a failure. In that scenario, your whole investment will be gone, and you will have to keep paying installments without gaining any profit.
Moreover, if you pay off your credit card debts by availing of a personal loan, you will free your credit card limit. And if you are a shopaholic, you can purchase unnecessary things with that card, and the debt will be doubled.
Hence, after taking a personal loan, you need to make a solid plan to spend that sum. Or else, you will keep drowning in debts, and no one can save you from that.
Things To Consider Before Applying For A Personal Loan
Now that you have learned about the pros and cons, here are some factors you need to consider before going for a personal loan.
1. Apply for a reasonable amount
While applying, do not exceed your limit. You should apply for an amount that you can use and repay without any trouble.
Availing a huge amount of loan may sound like music to the ear. But if you cannot pay the installments with your income, you will end up in a crisis, and you don’t want that.
2. Go through the terms and conditions carefully
When it comes to approving personal loans, every institute has its own rules and regulations. It never hurts to be careful.
Therefore, you need to read the terms and conditions cautiously to understand what kind of deal you’re making.
If there is a clause that you cannot fulfill or feels troublesome, you need to make sure it won’t be a problem in the future.
Compare Interest Rates
Before finalizing the deal, check multiple institutes that grant loans. In this way, you will get to know which one is offering you the lowest interest rate.
If you compare several options, it will be easier for you to get the most flexible plan. And that’s our topmost priority, isn’t it?
Also, be wary of loan scams in Singapore. Millions have been lost in recent years. Read about loan scam tactics and how to protect yourself here.
The Bottom Line
Personal loans can be your relief if you are going through financial trouble. You can clear your debts, repair your house, invest in a business opportunity; there are many scopes!
Couples in Singapore have also applied for wedding loans to help with the costs. It is costly to hold a wedding in Singapore, considering the money you need for wedding photography, wedding banquet, the solemnization and more.
Here we’ve discussed all the advantages of this loaning system and told you about the cons too. If you are ready to apply for a personal loan, why not apply with LoanStreet Singapore? We are able to help you get multiple quotes for free to compare and are able to revert within 1 day!
Apply for free here, we promise no hidden fees.