Finance

The Ultimate Guide: How to Choose a Personal Loan

If you are planning to borrow money so you can consolidate your debts, finance an emergency, or move across the country, then you should consider a personal loan. This can help you cover your expenses without breaking your bank.

Fixed, variable, secured, or unsecured? There are many options to choose from today and sometimes it can be confusing. Thus, you must do your research so you can select the loan that will suit your needs. With just a few minutes of reading, this can already help you save some money.

As such, here are some factors that you should consider in selecting a personal loan now:

Understand How Personal Loans Work

Personal loans can be considered as an installment loan. This means that you will borrow a fixed amount of money. Then, you will have to pay it back with interest in monthly installments throughout the life of the loan. This can typically range from 12 to 84 months. Whenever you pay your loan amount in full, your account will now be closed. If you wish to borrow more money, then you will have to apply for a new loan.

According to experts, you will have to think about why you need the money. Then, select the type of loan that is appropriate to your current financial situation.

Research Your Options

As you compare the different personal loan Singapore options, you have to remember to look beyond the interest rates. You also must consider the fees that the lenders charge. You can rank the personal loans by checking the interest rates and standard fees offered by the lenders.

Moreover, it is also very important to consider how the loan term will affect your budget.

Determine Your Needs

You have to determine your needs in having a personal loan Singapore. Are you getting a loan for large purchases? Do you need funds? Would the consistent repayment affect your budget? Remember, not all personal loans can be used for the purpose that you have in mind. One example, some personal loans cannot be used for debt consolidation.

Know the Interest Rates

The interest rates on your personal loan will spell a difference to the cost of the debt. How low or high the interest rates will depend on whether you select a secured or unsecured personal loan.

Unsecured personal loan refers to the type of loan in which the borrower does not provide any asset security for the debt. With this, the loan is considered as high risk. As such, lenders tend to have higher interest rates versus secured loans.

On the other hand, secured personal loans provide an asset that will become the security against the loan. One example is the car loan where the car is the security handed over to the lender. If the borrower defaults in his payment, the lender has the right to sell the car and recoup the liabilities.

Repayment Periods

In your personal loan, know the set of periods when you will pay the loaned amount. Usually, it is 12, 24, 36, 48, or 60 months. If you have lower repayment periods, then your monthly loan payments will be lower too. However, you will have to pay more interest versus in a shorter repayment period. Moreover, the interest rate can be tied to your repayment period. With a shorter repayment period, it will result to lower interest rates.

If you have an open loan, it can affect your ability for your other loans to get approved. As such, longer repayment periods can also limit your future credit options. Furthermore, many personal loans take off the penalty whenever you pay the debt early. As such, it is best to take the shortest repayment period that you can.

Know How Payments Made

There are two common ways repaying an online personal loan. Some companies will require you to put your check account information so the payments will be automatically deducted from your bank every month. However, others will send you a monthly statement digitally or by mail. They require you to go through the effort of paying the loaned amount monthly.

One method is not necessarily the best one. However, sometimes lenders who automatically deduct payments from your account can offer lower interest rates versus others. The tip here is to know how repayments will be made. Determine how it will fit into your personal cash flow.

Decide on the Amount that You Wish to Borrow

Personal loan options have maximum and minimum amounts. As such, the amount that you wish to borrow can limit your personal loan options.

You must calculate the money that you can afford to make in repayments. The higher money you borrow, the higher your repayments will be. This is true unless you wish to have a longer loan term.

Ready for a personal loan application journey? Find first the best personal loan rates here.