Multiple banks. Different interest rates. Call it a "conflict of interest".
  • Personal Loan Vs Revolving Credit – Understanding the Difference

    Personal loans are fixed repayment-based loans and you can apply for these loans to address any immediate financial crisis. These loans are usually unsecured loans and don’t require you to pledge any asset as collateral. A personal loan is usually given for a fixed term and up to a certain amount. You must make a fixed payment every month for these loans.

    Revolving credit facility, on the other hand, is usually handed for a short-term to help you financially. With these loans, you can withdraw any amount up to a particular agreed limit. There are no fixed repayment schedules associated with these loans. You can repay the borrowed amount at any point during your agreed term. Furthermore, for a revolving credit facility, interest is usually charged only on the amount you have used.

    Wondering which one is the right option for you? Read on to understand the difference between the two loans and make your decision.

    Difference between Personal Loans and Revolving Credit

    The key differences between a personal loan and a revolving credit facility are as follows:

    • Personal loans are unsecured loans. You don’t have to submit any collateral to get this type of loan. However, revolving credit facility can be either secured or unsecured, depending on the bank and the respective loan product.
    • In case of personal loans, the rates of interest stay fixed, and your repayments are calculated every month, based on the fixed interest rate.

    On the other hand, in case of revolving loan, the interest is charged only on the amount you actually borrow.

  • The interest charged in case of personal loans is usually low when compared with revolving credit facility.
  • You have to make regular monthly payments in case of personal loans. But, in case of revolving credit facility, there is no need for making regular monthly payments. You can make repayments at any point during the course of the loan. Moreover, the repayments are not fixed, as you only have to repay the loan amount that you have used.
  • Banks can’t call back on demand for the approved loan until the tenure expires or until you decide to terminate the personal loan. However, in case of revolving credit facility, banks can ask back for the loaned amount at any point of time.
  • Things You Need to Consider

    Personal Loans

    • You can use the loan amount to address any personal financial requirement. In case you need more funds, you will have to submit a new application. Some banks give you the option of topping up your loan amount.
    • Another thing to consider would be the fact that personal loans are characterised by a fixed tenure where you must make regular monthly payments. You can always choose a longer tenure so that your monthly repayment sum is less. However, you need to also understand that longer tenors would mean spending more in terms of interest charges. So, before applying for a personal loan, you must weigh in these factors.
    • The credit score is an important aspect of getting a personal loan. Usually, banks approve your personal loan application based on your credit score. If your credit score is too low, banks might even reject your application. On the other hand, if you have a good credit score, the chances of your application getting approved are higher.
    • Besides, you can also make early repayment on your personal loan and get rid of the loan much earlier. But, you must be aware that banks usually charge a prepayment fee, which is generally a small percentage of your loan amount. Thus, you must also take this aspect into consideration before getting a personal loan.

    Revolving Credit Facility

    • With revolving credit facility, you have the advantage of borrowing funds at any point depending on your needs. There is no need to submit a new application every time you need funds. This facility is ideal for people with irregular paychecks. It allows you to make purchases using your available credit.
    • You must be aware that you can borrow again on a revolving credit facility if you have repaid the previously borrowed amount.
    • The interest has to be paid for only the amount you use. There is no interest charge on your entire loan amount. Thus, revolving credit facility can help you save significantly on interest charges.
    • Furthermore, banks can call back for the loan on demand at any point. You might be still in need of funds, but banks can decide to terminate this facility at any point. Thus you need to take this aspect into account before applying for a revolving credit facility.

    Final Words

    As you can see, both personal loans and revolving credit facilities have their own set of advantages or limitations. Before applying for one of these credit facilities, you must reassess the purpose for which you need the loan. You must also read through all the terms and conditions associated with these credit facilities across banks in Singapore. This will provide you with more clarity regarding your decision of using one of the credit facilities. Moreover, you will be able to compare specific products and their benefits across several banks. Both the credit facilities, personal loans as well as revolving credit will get you the funds you require on an immediate basis. However, both have certain limitations of their own. So, take your time deciding on which credit facility will fit your requirements better before actually applying for one.

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