Why take out a generic loan for your higher studies when you can just as easily apply for a education loan package?

[dropcap]P[/dropcap]ersonal loans can be used to renovate houses, fund higher e*******n, consolidate credit card debt, pay off hospital bills or take care of unexpected emergencies. These loans range anywhere from S$1,000 to S$100,000 and have tenures from 1  to 7 years. The longer the tenure of your loan, the lower the monthly repayment amount, but the greater the total interest you will have to pay.

Considering the various reasons to get a personal loan and how useful they can be, here are some tips on what parameters you ought to consider when you apply for one.

TIP #1: Determine what you want to use your personal loan for

According to a survey conducted by Finder.com, the primary reason individuals take out personal loans is for vehicle-related expenses, i.e. 31% of borrowers. At number two, people apply for these loans to stay on top of immediate bills that need to be paid – accounting for 26% of borrowers. Unexpected emergencies then account for 21% of all borrowers, and this is quickly followed by 19% of borrowers needing funds for the pursuit of higher e*******n.

Lastly, 15% of participants in the survey took personal loans to secure lower interest rates by consolidating their debts. So whether it is for emergencies, fixing up your vehicle, paying off debt, or for higher e*******n, you have the power to decide  what way to spend your personal loan.

TIP #2: Calculate the total cost of the loan

It is imperative that you do your research and consider the total cost of the loan you want to take out since it will include several loan fees – from the loan origination fee and the processing fee, to the application fee, late payment and prepayment fee. The loan origination fee is charged by the lender to make the loan to you in the first place and is usually a percentage of the loan amount. It ranges anywhere up to 8% of the total loan amount and will be deducted from the amount loaned to you.

TIP #3: Figure out what average APR to expect on your loan

In 2018, you can expect the average effective interest rate on a personal loan to be anywhere from 11% p.a. to 14% p.a. The actual APR on your loan will depend on how creditworthy you are, how much you are asking for, the tenure of the loan, and who the lender is. Individuals with average to poor credit scores will face APRs between 18% and 26% simply because they pose a greater risk to the lender. In comparison, individuals with good to excellent credit scores can expect rates from 8% to 10%, and sometimes even lower.

TIP #4: You can use personal loans to consolidate your credit card debt

If you are struggling to pay off your seemingly never-ending credit card debt, you can always take out a personal loan to consolidate all your charges. You would be reduced to making one monthly payment instead of the number of the credit accounts you have open. The key benefit of taking out a debt consolidation loan is that you will be dealing with much lower APRs than those on your credit cards.


TIP #5: You can use a personal loan to help improve your credit

Credit bureaus tend to look out for a combination of credit lines, from credit cards to student loans, to calculate your credit score. If you take out an additional loan and make it a point to pay it back on time, you have now established a more stable payment history with lenders. This in turn will increase your credit score. Also, taking out a personal loan will lower your credit utilisation ratio, since the total loan amount has now increased, which is always good news.

TIP #6: Ask about loan qualification criteria before you apply

Every time you apply for a short-term personal loan from several lenders all at the same time, you are risking lowering your credit score. This is because every loan application will require an inquiry into your credit – multiple enquiries at the same time will lead to reduction in your credit score. Rather than just blindly applying for a bunch of them to see how your luck plays out, do your research and narrow it down to one or two you are eligible for. This improves your likelihood of getting the loan approved as well as maintaining your credit score.

TIP #7: More specific loans offer lower interest rates

When people need money, they usually apply for any general loan that seems easy to get. If you follow this strategy instead of looking for specific loans tailored to your needs, you lose out on lower interest rates. Why take out a generic loan for your higher studies when you can just as easily apply for a e*******n loan package at an average interest rate of 4.50% p.a. and benefit from lower interest.

TIP #8: Compare all the personal loan offers on the market extensively

Settling in applying for the closest personal loan may make your life easy in the short run, since it involves using less mental processing power and results in less analysis paralysis. However, you will suffer in the long run because the loan was not tailored to your needs and it starts to show. Also, just because you have been loyal to your bank for years, does not necessarily mean they care. So if they don’t reward you with lower interest rates when you ask for a personal loan, join the queue.

TIP #9: Read the fine print

There are many fees and terms that financial institutions insist on, on top of the interest you will have to pay. Some lenders charge an exit fee. This is so that they are not at a loss in terms of additional interest they could have got from you, had you not paid off your loan earlier than stipulated.Not to be surprised in the future by seemingly hidden charges, ensure you read the fine print well ahead of signing the agreement.


If the idea of not being able to handle emergencies from a financial standpoint scares you, or if your bills have taken on a life of their own with exponential growth, personal loans may just be the way to go. Considering you can get a loan from $1K to $100K, you have nothing to worry about that a personal loan can’t help cover. Just make sure your monthly repayments are on time, and your credit score is in check, and you’re set!



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