With a personal instalment loan, your repayment plan is fixed over a period of time, allowing you to plan your personal finances better. You can save more with a personal instalment than with other personal loans.
Most bank loans cover a specific purpose, like housing loans, education loans or even car loans. Sometimes, however, you may find yourself requiring money for other reasons – perhaps to purchase an engagement ring or to pay for your parents’ silver anniversary.
That’s when a personal instalment loan comes in handy. And compared to other loans in the market, this type of loan charges a lower interest, saving you some serious cash.
Here’s a crash course on how personal instalment loans work.
Best Buys 12 Month Personal Instalment Loan
|If you borrow S$5,000 for a loan tenor of 12 months|
|Product Name||Flat Interest Rate p.a.||Effective Interest Rate p.a.||Total Repayment||Monthly Repayment|
|Maybank CreditAble Term Loan||3.78%||10.50%||S$5,189||S$432.42|
|ANZ MoneyLine Term Loan*||5.80%||10.91%||S$5,290||S$440.83|
|POSB Loan Assist||6.18%||19.03%||S$5,309||S$442.82|
* ANZ offers this rate only for existing ANZ customers.
How a Personal Instalment Works
It works pretty straightforwardly: you borrow a lump sum of money from a lender and pay it in fixed monthly repayments over an agreed period.
For example, you may be asked to pay exactly S$500 a month for two years, or S$200 for five years.
A personal instalment is a term loan. This means you get a one time disbursement of the loan amount. If you take out a personal loan of S$10,000, this is the amount you’ll get upfront. You’re required to pay it off in monthly instalments until your loan tenor is up.
If you want to borrow more money, you’ll need to make a separate loan application.
Personal instalment loans can be either secured, or unsecured. Unsecured loans do not require any collateral. Secured loans usually have a lower interest rate. However, the collateral that you put up can be seized by the bank if you cannot make repayments.
When Should You Borrow with a Personal Instalment?
When you need a bigger sum of money, you use a personal instalment. The lender usually sets a minimum sum you can borrow – this is typically around S$1,000.
If you want to borrow a smaller sum, you can use credit cards or credit lines. However, the maximum amount you can borrow from credit cards and credit lines are restricted by your credit limit, usually set up to twice of what you earn monthly.
If you need to pay for something that is more expensive and wish to distribute this into fixed monthly repayments, you are better off looking for a personal instalment loan.
The Advantages of a Personal Instalment Loan
You actually save money with a personal instalment loan compared to other loans because the interest rates are much lower. In comparison with credit lines, which charges 12% to 20% per annum, you’ll be charged from as low as 4% to 5% per annum.
Also, if you’re the sort who likes your finances to be in order, the fixed monthly repayment on a personal instalment loan can help you plan it better.
4 Rules for Using a Personal Instalment Loan
1. Borrow only what you need, repay faster
Know how much you need to borrow and how long you’re going to pay it off. The more you borrow, the longer it might take you to repay it.
Only borrow what you need, and never choose the longest repayment period.
A longer repayment period might have lower monthly repayments but you’ll end up paying a lot more interest on your loan in the entire tenor.
2. Always check the Annual Interest Rate applicable to you
All loan providers advertise the annual interest rates in tables on their websites or on their product brochures.
These rates may vary by loan amount borrowed, by loan tenure, by your annual income and/or by all three factors. Always check the interest rate applicable for you when you apply for a loan because you might not get the rate advertised by the provider.
3. Know all fees and penalties
On top of interest you’ll be charged, you might also have to pay processing fees, annual handling and insurance fees. Some providers might even charge you an early repayment fee if you decide to repay the loan before the tenor is up.
Always read all the fees and penalties before applying for a personal instalment loan.
4. Check for latest promotional gifts and offers
Always check for latest promotions, welcome offers and gifts when you apply for a personal instalment. Lenders like to draw customers in with attractive gifts such as Nespresso machine or lower interest rates on the personal instalment loan.
Compare the personal instalment loan for you now.
By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.