When in a financially sticky situation, we might turn to either a personal loan or a balance transfer programme for a quick fix. Personal loans are unsecured loans offered by banks for various purposes. Balance transfer facility, on the other hand, helps you transfer your outstanding credit card(s) balances to another card, usually with a lower rate of interest. Let us look at the various aspects of both these products to know which one works best for you.
What Is the Purpose of These Loans?
A personal loan can be used for any purpose. Whether you need funds for a medical emergency or for a vacation, you could use a personal loan.
However, the purpose of a balance transfer facility is to help you effectively manage your outstanding credit card dues. With balance transfer, you can transfer your dues on an existing card to a new card that offers lower interest.
What Are the Interest Rates?
Usually, the interest rates on personal loans are high, as these are unsecured loans. The rates may vary from bank to bank and are usually determined after taking into consideration factors like borrower’s income, loan tenure, nationality, credit score, etc.
In case of a balance transfer, the interest rate is determined on the basis of the tenure you choose and your relationship with the bank. Also, some banks charge a one-time processing fee for balance transfer.
How Much Can You Borrow?
For a personal loan, the amount you can borrow mostly depends on your monthly income. Most banks in Singapore offer you an amount that is 4 times your monthly salary. Higher your income, the more you can borrow. In case of a balance transfer, you will be able to transfer an amount that is approved by the bank.
What Is the Monthly Repayment Amount?
For a personal loan, the repayment amount is set by the bank when you apply for the loan. This amount is primarily dependent on the amount you borrowed and the tenure. For a balance transfer, the monthly minimum payment is determined as a certain percentage of the transfer amount.
Is There Any Interest-Free Period?
A balance transfer programme will give you a breather to take stock of your finance. You will get an interest-free period during which you can pay off your existing debt and save on your interest charges.
In case of a personal loan, there is no interest-free period. You are charged interest starting from the day the loan amount is credited to your account.
Keep This in Mind
You can choose a loan or a balance transfer programme according to your financial requirements. As you may know that banks check your credit score before approving your application for a loan to understand your financial behaviour. Therefore, it is important to have a good score to increase your chances of approval. Having no loans could work against you as banks will not be able to gauge your financial habits. When you apply for a new credit card to transfer the balance from other credit cards, your credit score may be temporarily hampered. However, if you make the payments on time, you will be able to raise the score over time.