Multiple banks. Different interest rates. Call it a "conflict of interest".
  • Personal Line of Credit vs Personal Instalment Loans in Singapore

    Personal Line of Credit

    Banks and other financial institutions in Singapore offer a type of loan called Personal Line of Credit (PLC) to those who need immediate funds. This is a good way of getting money when you need it urgently, especially in situations where expenses are unpredictable.

    Features of Personal Line of Credit

    A PLC is a flexible unsecured loan. It gives you a certain amount of cash that you can withdraw whenever the need arises. You can choose to withdraw the whole amount or parts of the amount. This is perfect for emergencies since the amount is already approved for a period and is readily available when you need it.

    Every personal line of credit has a fixed limit. You cannot withdraw once you have exhausted this limit. However, you can revise this limit with the bank if the bank is satisfied with your repayments. A monthly or annual fee is charged for using this facility, whether you withdraw money from the account or not. However, the bank charges interest only on the amounts that you withdraw. You can borrow and deposit money into this account as long as you are in good standing with the bank and the PLC account remains open. For every amount you borrow, you have to pay the bank a minimum amount every month till you repay the total principal and interest. A PLC is flexible in the sense that you can use the money to pay for any of your purchases and expenses. There usually are no restrictions for spending.

    Pros and Cons of Personal Line of Credit

    Pros

    • The Annual Percentage Rates (APR) charged on personal line of credit are generally lesser than those charged on credit cards.
    • You have to pay interest only when you actually borrow money from the account.
    • You can borrow small amounts whenever you want to and reuse the account as many times as you want.
    • You don’t have to put up any collateral.
    • There are no restrictions on how you should spend the money.
    • Helps provide cash when expenses are fluctuating or income is irregular.

    Cons

    • You have to pay the monthly or annual fee whether you withdraw money or not.
    • The interest amounts are not tax-deductible.
    • Banks may increase the APRs at a later date, making your monthly payments more expensive.
    • Banks prefer customers with good credit scores.
    • High interest rates and penalties for late payment.
    • The temptation to spend unwantedly is always there since the cash is readily available.
    • Not paying your instalments on time leaves a high unpaid balance which affects your credit rating.  

    Personal Instalment Loans

    It’s a type of personal loan where you get the lump sum amount from the lender and you have to pay it back in equal monthly instalments.

    Features of Personal Instalment Loans

    Personal loans are unsecured loans that require fewer documents than other loans such as education loans and car loans. You can use the money you borrow to pay for any purchase or expense, as per your discretion.

    Factors Affecting Your Personal Instalment Loan Approval

    Whether or not your loan application gets approved depends on how good your credit score is. Banks in Singapore take your credit rating into consideration while reviewing your application. Having a good credit score helps you get a higher loan amount with favourable interest rates and better tenures. This makes it easier to for you to pay your monthly instalments. However, if your credit is not satisfactory, the bank may not approve your loan at all. Even if it does sanction a loan, the amount and terms specified may not be what you expect.

    A bank will grant you a loan only if it is sure that you are capable of paying it back on time. If your credit is flawed, the first step is to try and gain the trust of your bank by improving your credit score. The best way to do this is to apply for smaller loans and repay them without any default. Doing this over multiple small loans will increase your rating slowly. Apart from this, there are other criteria such as minimum and maximum age, minimum salary requirements, and citizenship status that affect approval of these term loans.

    Pros and Cons of Personal Loans

    Pros

    • Personal instalment loans don’t require collateral.
    • Since they require fewer documents, they get processed faster.
    • Personal loans offer complete financial flexibility in terms of spending.
    • The interest rates are fixed, protecting you from future increases in rates.

    Cons

    • These term loans have higher rates of interest when compared to other loans such as car loans or education loans.
    • Banks charge high interest and other fees on late instalments.
    • There is always the temptation to borrow more than you need.
    • Over-borrowing results in larger instalment amounts which you may find difficult to pay.
    • Banks charge a fee for early repayment of the loan.

    Is One Better Than the Other?

    Not necessarily. Both personal lines of credit and personal instalment loans offer immediate cash but are better suited for different situations. If you are looking to borrow money intermittently with the intention of paying each borrowing back at the earliest, a PLC is the better choice. A PLC is perfect if you have a long-term project that requires an infusion of cash every now and then. You can borrow small amounts whenever you need them and pay them back in a week or so.

    On the other hand, if you want a lump sum up front and want to pay it back over a longer period, a personal loan is the better choice. Keep in mind that though longer repayment periods have smaller instalment amounts, you end up paying more as interest. Both options are great sources of getting fast cash to help you through difficult times. But remember that you need to repay both within the stipulated time. Failing to do so will only add unwanted interest and late fees to your expenses.

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