Take personal loans to get out of a tough situation only as a last resort

Whenever people have a requirement for some urgent cash and cannot come up with the amount needed with the resources they have, they inadvertently apply to banks to take personal loans.

By: Phoenix Lee/

Getting a loan today has become very easy, what with the stiff competition prevalent among different banks and financial institutions. The easiest to get among the plethora of loans available are personal loans.

If you want to take personal loans, they are easy to get, but they have their pros and cons:

Pros

• No collateral: Unlike other types of loans, you don’t need to produce any collateral, or security, to avail of a personal loan.
• Can be taken for any reason: Normally a personal loan is just that — for personal use. Once you satisfy the loan eligibility, the banks give you the loan, irrespective of how you put the money to use.
• Minimal paperwork: Banks normally do not ask you for more than a few critical documents for approving a loan.

Cons

• Strict qualifying criteria: Because of minimal paperwork and no security, qualifying for a personal loan is a strict affair.
• High interest rates: The interest rates for personal loans are very high and second only to the extremely high interest rates charged by credit card companies for credit card cash advances.
• Lots of fine print: The loan agreement has a lot of clauses in fine print, which one needs to understand thoroughly before opting for a loan.

When is it okay to take personal loans?

• Paying off your credit card dues: Personal loans make sense when you have to pay off huge outstanding amounts on your credit cards. The interest rates charged by credit cards are very high, sometimes amounting to 25 per cent per annum. Therefore, if you take personal loans to pay off the credit card, it may turn out to be a good option to reduce the amount of interest you pay.
• An urgent requirement for cash: Because of minimal paperwork, getting a personal loan is a fast process. So if you are really in a tight spot and need some urgent cash to bail you out, it makes sense to take personal loans.

It is important to understand that personal loans are a good option only if the amount you require is not very big and your monthly budget can easily fit in the added expense. Exercise the option and take personal loans, only because you have no other option and it is possible to pay it off in as less a time frame as possible to help you save on the interest cost.

When is it not okay to take personal loans?

• Financing the home improvement: In case if you are looking for doing some repairs to your house, opting for a personal loan is not necessary. You can do these repairs with a renovation loan.
• Buying a car: If you are buying car, a car loan would take care of your needs. You do not need to take a personal loan for that.
• Speculative purposes: Never take personal loans to invest in stock markets or other speculative purposes. This is nothing short of a gamble where you might lose out the money invested. Short-term speculative investments are not a wise option to use your money for, especially in the instance of having to opt for a personal loan.

Alternatives to a personal loan

Home equity loan is a good option that can provide you loan at lower interest rates. The loan is available at a certain percentage of the property’s market value. Home equity loan interest rates are much cheaper compared to personal loan rates.

You could also utilise any investments you might have made so far, like shares, securities, fixed deposits amd insurance policies. You can pledge these as collateral and obtain a loan against them.

For instance, you can obtain a loan against the surrender value of your life insurance policy from the insurance company. The interest rates for such loans would definitely be lower compared to the personal loan interest rates.

So before you decide to take personal loans, check alternatives with lower interest rates. A personal loan may be easy to get, but does not necessarily become the best solution.

How to Secure a Personal Loan Quickly

If you have a pressing need and want to take personal loans to tide over a tough situation, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.

Also, we have Affordability Tools which can help you make better property buying decisions. iCompareLoan Calculators help you ascertain the fair value of a property and find properties below market value in Singapore.

If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.

Contact us for advice on a new home loan.

Contact us for home loan or refinancing advice.