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When Does it Make Sense to Take a Personal Loan?

When Does it Make Sense to Take a Personal Loan?

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People who have a conservative mindset are usually averse to all types of loans. They reason that everyone should live within his means and that it is preferable to save for a purchase rather than borrow to pay for it. While this line of thinking has its merits, there are times when raising money by taking a personal loan is the best option that you may have. For example, you may have to pay the fees for an educational course for yourself. In other cases, you might have an emergency that requires immediate access to funds that you don’t currently have. One way to access funds could be to sell some of your investments. however, liquidating your long-term investments to meet your immediate needs is often financially imprudent as you likely will not get a fair price for your assets.

In these cases, a personal loan in Singapore could be a better alternative. Personal loans cn be made available at fairly low interest rates, and repayments can be made in a manageable way over a period that stretch up to seven years. A personal loan which has an affordable interest rate and an extended repayment term will result in a relatively low monthly instalment.

Of course, you should not take a personal loan unless you really need it. Even though some lenders charge very reasonable rates of interest for these loans, why should you pay any interest at all if you can avoid it? Here, then, are several circumstances where a personal loan is absolutely justified. Taking one can lead to an improvement in your financial position and give you long term benefits.

Credit card debt repayment

It is easy to get carried away when you pay for your shopping needs with a credit card. The fact that you don’t have to pay cash for the transaction leads many people to spend more than they can afford. But, at the end of the credit card billing cycle, you will receive your monthly bill. If you cannot afford to pay it in full, you have the option of rolling over a major portion of the sum that is due. Unfortunately, many people fall into this trap.

Before they know it, they are caught in a vicious cycle. The outstanding amount is more than they can afford to pay and they need to roll over their debt every month. However, the interest rate on credit card outstanding amounts can be as high as 25% or even more. You will need to continue paying your credit card issuer at this rate till you manage to clear your entire outstanding. This means that your credit card debt will balloon out of proportion, and potentially ruin your credit score for good!

Is there a way to avoid paying interest to the credit card issuer endlessly? A personal loan can provide a perfect solution. You can use the funds that you borrow to repay your credit card dues. The lower interest rate around 15% that you pay on your personal loan can help you save a substantial amount in interest expenses on a monthly basis. Not only that, there are balance transfer loans that provide interest free periods to help you manage your debt down as quickly as possible. If you have outstanding amounts on several credit cards, you can repay them all and regain the use of your cards and the free credit period that you are entitled to.

Life Emergencies

An unsecured personal loan can be a great way for you to get a relatively large sum of cash for an emergency. Perhaps you suddenly need a costly medical treatment that you don’t have the cash to pay for. Maybe you need to make a down payment for a wedding. Regardless of what it is, if you don’t have access to a big sum of cash you need right away, personal loans can be a decent method of solving your problem in the short term. If you are looking for a personal loan, you can check out our analysis on the best personal loans in Singapore. Here are some examples of emergency situations that may require you to get a personal loan:

  • Family Emergency
  • Medical Emergency
  • Wedding
  • Vacation or Honeymoon
  • Pay Off Credit Cards
  • Debt Consolidation

Education

There is also a special type of personal loan designed for students who might need help with their education expenses, like school text books or even tuition. Obviously, you have to be an enrolled student to qualify for this type of loan, but if you do qualify it’s a great way to finance your education because banks offer a special low interest rates around 5-6% for students, roughly 30-50% lower than what is usually charged for personal loans.

Buying an expensive TV or costly furniture

When buying big-ticket items for your home, it is very convenient to pay using the instalment plan on your credit card. This method can give you great savings, especially if you are offered a 0% instalment plan. But if your credit card issuer charges interest on the instalments, it will be useful to find out the rate that will be levied. Often, a personal loan will work out to be far more economical than an instalment plan because it charges much lower rate and also has fixed monthly payments that can be easily managed.

A personal loan is a first-rate financial product

There are several factors that contribute to making a personal loan an excellent way to raise money. Firstly, it forces the borrower to plan in advance. Unlike a credit card, where impulse buying plays a large role in the accumulation of debt, a personal loan cannot be taken on a whim. The second advantage is that the rate of interest is usually quite low. And finally, the loan is for a fixed term and carries a fixed rate of interest. You know exactly how much you need to pay and for how long, so the debt repayment is very easy to manage. Contrast this with a credit card debt, whose interest compounds daily if you don’t pay it back. Therefore, a personal loan is definitely a useful option for anyone looking for a quick, reasonably priced and convenient small-value loan.

You can read more about the basics of a personal loan to learn how it works and how it can help you.

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ValuePenguin is personal finance company based in New York. DJ is responsible for building ValuePenguin’s presence in Asia, from researching personal finance topics in the region to building relationships with financial and media institutions. He previously worked as an investment analyst at leading hedge funds in New York including Cadian Capital and Tiger Asia. His expertise is in the global technology, consumer and financial industries. He graduated from Yale University with a degree in Economics, and speaks Korean, English and Mandarin Chinese.

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