In a world where everything is perfect and everyone has got everything they need, it’s highly likely that nobody would ever need to borrow money for anything. But we don’t live in such a world. It’s not a perfect world. You have needs that you have to meet and for that, you have to borrow at some point or the other. So, that’s how you get introduced to the world of personal loans.
Personal loans, as the name suggests, can be used for any personal purpose. You can use it to fund your wedding, your child’s education, your foreign vacation, or even someone’s funeral. Depending on your requirements, and of course your eligibility, you can borrow for short term or long term.
What are Long Term Personal Loans?
If you are borrowing for a period of 4-7 years, it’s considered as a long term personal loan. Long term loans make sense when the amount you need to borrow is large. By choosing a longer term, you can reduce your monthly repayment amount. But that also means you will be paying more in interest than you would pay for a loan of shorter duration.
Some Situations Where Long Term Personal Loan Is an Ideal Solution
Taking a personal loan for a long term can prove really useful, if you are using it responsibly and for the right reason. Take a look at some situations when taking a long term loan is considered as the right decision:
- Wedding: Getting married is an expensive affair. If you haven’t pre-planned it, you could opt for a long term personal loan. However, even if you don’t have enough time, don’t settle for a loan without considering its terms and conditions. Stressing over a loan deal is the last thing you and your spouse would want as newlyweds.
- Education: Certain professional educational courses can be really expensive. So, if you haven’t saved for your education already, consider a long term personal loan. If you meet the eligibility criteria, you can get your loan approved within minutes. However, make sure that you take a personal loan only when you don’t qualify for an education loan.
- Business expansion: There are times when you need funds for your business urgently. The first option that comes to your mind is business loan. However, based on the performance of your business, banks may or may not approve the amount that you require. Another option is finding an investor who is willing to invest in your business. But that’s also time consuming. In such situations, you could opt for a personal loan for your business. It’s easy to secure and you can use the money as you like.
- Home renovation: Renovating a home is usually a big expense. Normally, it’s advisable to go for a home renovation loan for that purpose as it’s cheaper than a personal loan. However, in case you are not eligible for a home renovation loan or if your approved home renovation loan is not enough, you could opt for a long term personal loan.
- Debt consolidation: If you have multiple outstanding loans that you are struggling to repay because of the high interest charges, you could consider a long term personal loan to consolidate all your debts in a single loan. This could help you save a lot on your interest charges in the long run. Also, it will be easier for you to manage one loan than managing multiple loans.
Here’s How a Long Term Personal Loan Can Be Beneficial for You
- Longer tenure means smaller monthly payments: Since the amount you are borrowing has to be repaid over a longer period, your monthly repayments will be lower. This means there will be less burden on your monthly budget.
- Stability: When you have a loan for a longer tenure, you enjoy a sense of stability. This is especially true for low income individuals or variable income earning individuals.
- Make expensive purchases: When you have a fixed income, making big purchases can put your finances under stress. However, with a long term loan, you can break down the cost of that purchase into smaller monthly payments, making it easier to manage.
Keep These Things in Mind Before You Apply
Your Monthly Budget
No matter how big an emergency is, don’t apply for a loan if you can’t afford it. Consider your monthly budget and see if you can afford to pay the monthly instalments. If your budget is not enough for covering your monthly payments, see if you could cut down on some other expenses. Planning your budget will help you manage your loan easily.
The tenure of your loan will determine how much you will pay every month and how much you will pay in interest over the life of the loan. As you know that longer tenure means small monthly payments while shorter tenure means less interest charges, make sure you plan the term carefully. Also consider your budget to figure out the tenure that works best for you.
The approval of your loan, and the applicable interest rate, depends on your credit score, among other things. If you have an average score or a better than average score, you have higher chances of getting your loan approved with an attractive interest rate. That’s why it’s important that you know your score before you apply for a loan.
In case your score is below average, figure out ways to improve it before you apply for a loan. Also, it’s good to keep an eye on your credit report always. Your credit report could have errors that can be corrected by contacting the authorities. Once these irregularities are fixed, your score may improve.
The interest rate on your loan can make a huge difference to your pocket, especially if it’s a long term loan. Make sure to check and compare the rates offered by different lenders before you sign up for a loan. In Singapore, personal loan interest rates start from around 4% p.a. and go up to about 20% p.a. The rate will be determined on the basis of your income, credit score, and your relationship with the bank.
Other Fees and Charges
There are a variety of other fees and charges associated with personal loans. It’s important that you know about all these additional costs before taking the loan. Some of the most important fees and charges are:
- Processing fee: It is the administrative fee charged by the lender for processing the loan and is determined as a certain percentage of the loan amount approved. You have to pay this fee upfront. However, if you shop around, you may find certain promotional offers where you get a processing fee waiver.
- Early repayment fee: Sounds unfair but banks do charge a fee when you repay your loan before the tenure ends. That fee is called early repayment fee and is determined as a certain percentage of the redemption amount.
- Late payment fee: If you fail to pay your monthly instalment on time, the lender will charge you a late payment fee. This fee may vary from bank to bank.
- Overdue interest: When you fail to make the monthly payment on your loan by the due date, you will also be charged with an overdue interest. For instance, HSBC charges 2.5% p.a. over and above your personal loan rate as overdue interest.
Long Term Personal Loan Options in Singapore
Most lenders in Singapore offer personal loans with a tenure of 1-5 years. So, if the tenure you are looking for is up to 5 years, you have a variety of options to choose from. Check out these options:
- Citibank Personal Loan
- Standard Chartered CashOne
- OCBC ExtraCash Loan
- DBS/POSB Personal Loan
- UOB CashPlus Personal Loan
- CIMB CashLite
However, if you need the loan for more than 5 years, you can consider the following options: