Never Say Never with Personal Loans

Personal loans are not synonymous with debt accumulation. In fact, there are moments when they will help you out when in need.

Many people are worried by the prospect of taking out a personal loan. For the most part, these fears are unfounded. But personal instalment loans are just tools.

Think of them as you would hammers or saws: they might hurt you if used improperly, but you can’t build a house without them either. Here’s why you shouldn’t why away from personal loans too often:

1. Personal Loans Put Opportunities within Your Reach

The point of using a personal loan is to break large payments into small, manageable ones. Rather than fork out S$30,000 at one go for a critical training programme, for example, you could pay S$100 a month (or less, if you stretch the loan term longer).

This means that loans enhance your earning potential, by putting usually unattainable opportunities within your reach. If you always needed to learn how to code, fix motorcycles, or learn basic electrical engineering, a personal loan can put those pricey skills courses within reach.

2. Personal Loans are probably the Best Option for Credit

Short of two other loan types – home loans and borrowing from family – personal loans from banks are probably the cheapest source of credit.

Credit cards charge up to 24% per annum, and pawn shops go up to 12% per annum – you will also need something to pawn. Loans from money lenders should not even be considered, as they can reach 48% per annum (or even more depending on your income). Personal loans only have an interest rate of 6 to 8% per annum.

It is always best to keep an emergency fund of six months income to deal with crises. However, if you are in dire straits and don’t have one, a personal loan is almost always your best alternative.

3. Personal Loans Build Your Credit Score

If you have had bad credit before, personal loans offer you a way to fix it. Simply take out a personal instalment loan, and make prompt repayments every month. Over time, this will demonstrate that you are creditworthy to the bank’s reviewers.

Personal loans can also help to overcome a “thin credit file”. This is when you have taken no loans before, and lenders have no past history on which to evaluate your creditworthiness. While this will not stop you from getting loan approval, it could impact the loan quantum (the amount they are willing to lend you).

4. Personal Loans are Cheaper and Safer than You Imagine

It is actually rare for someone to default (be unable to repay) a personal loan.

First, there is an insurance option that can come packaged with personal loans. This is fairly cheap, often amounting to little over S$100 to cover the whole loan. In the off chance that you are truly unable to repay the loan, the insurance will cover the rest of it.

Second, the low-interest rate is often complemented with promotions. When banks are far from their loan quotas for example, they often give interest-free periods for as long as three months to a year.

You can look for the best personal loan with the comparison tools on SingSaver.com.sg.

5. Personal Loans Ease the Stress off Critical Events

Many people wonder how they can possibly afford their wedding, or important surgery that would not be covered by insurance. There are also times when we need to help parents or relatives financially, but cannot afford to take a huge chunk out of our life savings to do so.

Personal loans are a life saver in such situations. Rather than deplete our bank accounts or “fire sale” our investments, the loan allows us to pay for the event in manageable monthly sums. This is a tremendous source of psychological relief, and you won’t kept up in a cold sweat at night.