Cash woes? A personal loan to the rescue!
  • Personal Loan Vs Secured Loan

    Personal loans fall into the category of unsecured loans and are usually different from secured loans. In case of secured loans, you have to generally pledge assets or belongings as a collateral with the lending organisation. This is different from personal loans which you can obtain without having to submit any form of collateral with the bank. Personal loans are usually issued based on your creditworthiness and your ability to repay the borrowed amount.

    Ways You Can Use Personal Loans and Secured Loans

    Personal Loans

    • Personal loans can be used for paying off debts or consolidation of several debts under one account. If you have to pay off a long-standing credit card bill or a debt from a previous loan, and your current financial standpoint doesn’t allow you to do so, you can go for a personal loan. The loan you choose to clear off the debts must ideally have an interest rate lower than the one on your debt.
    • You can also borrow a personal loan for the purpose of home renovation. Home renovation can turn out to be an expensive affair, but it’s not as costly as purchasing a new house. In such cases, getting a home loan or any such secured loan might not really be needed. You can go for a personal loan to pay for the expenses pertaining to home renovation.
    • You can also use a personal loan to finance expenses related to education, in case you are not eligible for an education loan.
    • As discussed earlier, personal loans can be taken to address any urgent personal need. For instance, you could take this loan for your wedding or for a vacation with your family. You can also make use of these loans to pay for medical, treatment or hospitalisation expenses, in case you’re not covered under any insurance policy.

    Secured Loans

    • Secured loans can be borrowed when you want to finance a new home purchase. Banks will easily provide you with a home loan or a mortgage loan if they deem you eligible for the loan. In this case, the property you purchase will also act as collateral for the loan. It is applicable for purchase of both private residential properties and HDB flats.
    • You can take a secured loan for your construction projects as well. In this case, you borrow a loan amount from a financial institution in order to finance the construction of a new house or any other private property.
    • Secured loans can also prove useful when you want to invest into buying a property overseas.
    • You can also take a secured loan in order to refinance your existing home loan. This is usually done to replace your existing loan with another loan in favour of a relatively lower rate of interest.
    • Secured loans can also be used for a new car purchase, with your car acting as the collateral.
    • You can also opt for a secured loan in case you want to refinance your existing car loan. Car loans are usually refinanced in favour of low rates of interest.

    Key Differences Between Personal Loans and Secured Loans

    The key differences between personal loans and secured loans are as follows:

    • In case of personal loans, you don’t have to pledge any asset of yours to secure the loan amount. This works differently in case of secured loans where you have to pledge a collateral with the lending organisation in lieu of the loan amount.
    • Secured loans are usually cheaper than personal loans as the banks have their risks covered in the form of the collateral you pledge.
    • With personal loans, you can make use of tenors stretching up to 7 years. However, in case of secured loans, the tenors can stretch up to 35 years, depending on the type of loan and the bank.
    • Personal loans have a lower borrowing limit when compared with secured loans. Most Singaporean banks allow you to borrow up to four times your monthly income. However, secured loans come with a high borrowing limit, depending on the value of the pledged asset.

    Things to Consider

    Personal Loans

    Borrowing Limit

    • As the borrowing limit is slightly lesser in comparison to secured loans, you might want to reassess your decision of getting a personal loan.
    • If your loan request entails a significantly large amount, you might ideally look for other financial instruments.

    Credit Score

    • Impact on your credit score is another aspect of taking any personal loans.
    • These loans usually don’t require any collateral to be pledged. As a result, banks find themselves in a position of risk while approving your loan requests.
    • They are really stringent about repayments being made on time when it comes to personal loans.
    • If you fail to make repayments on time, you might end up with a low credit score. This will, in turn, affect approval of your future personal loan requests.

    Shorter Tenures

    • Personal loans are usually characterised by shorter tenures when compared with secured loans.
    • Before you decide on opting for a personal loan, you must ensure that you would be able to repay the entire amount within the tenure chosen.

    Early Repayment

    • You can choose to prepay your loan and get rid of it entirely if your current financial standpoint allows you to do so.
    • However, You must be aware that most banks charge you an early repayment fee, which is usually a very small percentage of the borrowed amount.

    Interest Rate

    • Due to their unsecured nature, personal loans are usually characterised by elevated rates of interest.
    • You could study the market to compare the rates of interest associated with different personal loans.
    • Alternatively, you could also look for other sources of financing to avoid the paying higher interest charges.

    Secured Loans

    Collateral

    • The collateral stays with the bank until you repay the borrowed amount in full to the bank.
    • Be more careful with repayments, as if you fail, the bank or the lending organisation will seize ownership of your collateral.

    Higher Borrowing Limit

    • Secured loans have higher borrowing limit.
    • As you borrow a bigger sum of money, you’re put in a situation of higher risk.
    • You have to be proactive when it comes to making repayments.
    • Ideally, you should reassess your financial standpoint before applying for any big amount under secured loan category.
    • Failing to repay the amount will only put you under a huge debt piles, further impacting your credit score.

    Interest Rate

    • Secured loans can have fixed or variable rates of interest.
    • You must study the market properly before applying for a loan as it will give you a fair idea about the fluctuations in interest rates, besides helping you decide on which will suit you the best.

    Last Words

    Both personal loans and secured loans have their own set of advantages. You have to look at several factors before choosing one. You should look at the amount you want to borrow, the interest rates associated with your loan, and the other charges that are usually charged on such loans. Both theses loan prove useful in different situations. You have to evaluate the loan in terms of your purpose. Not every loan will meet your specific requirement. Most importantly, you should assess your own financial standpoint so as to determine if you would be able to repay the loan. You wouldn’t want to be in a situation where you can’t clear the loan amount as it will only impact your credit score negatively, further affecting your future chances of getting another loan. You should also study the market thoroughly before opting for any of these loans. This way you will be able to understand the rates of interest associated with different loan packages. You would ideally want to apply for a loan that charges you a comparatively lesser rate of interest.

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