You’ll be surprised to find that Singaporeans don’t get personal loans just because they need cash.
Terrified of loans? Don’t worry, many young adults in Singapore are as well. We’re raised in a culture where we’re taught it’s bad to borrow money.
However, personal loans in Singapore can be powerful tools for improving our lives, if they are used in a responsible manner. Here are some ways many people have used them to good effect:
1. Helping Out Family and Friends
Sometimes, your family and friends need help. This can be due to medical reasons, someone losing their house, being retrenched, etc.
As an option, you can consider taking out a personal loan for medical emergencies and other urgent needs. Find one that would have manageable repayments (e.g. S$100 or S$200 a month), and pass the cash from the loan to your needy relative or friend.
This is much safer than paying them a lump sum out of your own life savings, particularly if there is a chance they cannot pay you back.
2. Personal Loans Take Over When Reno Loans Run Out
Renovation loans have a cap of S$50,000. Sometimes this is insufficient, or something goes wrong and the interior designer goes over budget. Using a personal loan for your home renovation is a better option, as opposed to leaving your kitchen half assembled. But do be careful – you are probably overspending if S$50,000 is not enough to cover your furnishings.
3. Personal Loans Can be Used to Consolidate Debt
If you owe money on multiple credit cards, one trick you can use is to pay them all off at once with a personal loan. This will allow you to replace the high-interest credit card loans with a single, lower interest personal loan.
You can also do this through a balance transfer (an option to transfer debt from one credit card to another). But if for some reason you prefer not to, such as not wanting to take on another credit card, a personal loan will do the trick as well.
4. Maintain a Safe Level of Funds During Big Purchases
So you’ve saved S$10,000 for your big, month-long holiday abroad. Congratulations! But you may want to think twice about paying all at once, even if you could. If you were to spend all $10,000, and you don’t have income for the month you’re off, a single emergency can ruin your vacation (e.g. losing all the money in a robbery).
You might want to consider taking a personal loan for S$10,000 (even if you have the cash), and then gradually paying it down in amounts of a few hundred dollars, over a year or two. This will ensure you have cash to handle emergencies, and you can still enjoy your holiday.
5. To Avoid High-Interest Rates and Fees on Credit Card Cash Advances
When people require cash urgently, they sometimes activate the cash advance feature on their credit cards to get a quick loan. But taking a minute to compare interest rates reveals that you get a much lower interest rate with a personal loan compared to a credit card.
Additionally, credit cards charge you a cash advance fee of 6% of the withdrawn amount or S$15 –
whichever is higher. On the other hand, personal loans don’t charge any up-front fees at all.
6. Personal Loans are Great for Wedding Rings
The very last thing you want to do is pay for your wedding ring with a credit card (unless you have enough cash to pay it all back before the next billing cycle). With its interest rate of 24% per annum, a credit card will mire you in debt at a crucial time in your life.
Instead, get a personal instalment loan at low interest (usually between 6 – 8% per annum) to pay for it. During promotional periods, you may even find 0% interest loans, which charge you no interest for between three to six months.
7. To Avoid Making Insurance Claims
Sometimes, insurance policies give out bonuses if you don’t file claims for a given period of time. There is also moratorium insurance, which only kicks in when the policy holder doesn’t make certain claims for up to five years.
Under these circumstances, some people choose to take out loans to make repayments without a claim. This helps them to retain any discounts or bonuses in their insurance policy, without leaving them flat broke.
8. Personal Loans Can Cover for Late Payments
If your employer pays late, you should take it up with the Ministry of Manpower. However, the complaint will not change the fact that, at that given point in time, you are broke and need money.
This is especially true for the self-employed. If you run your own business, or are a freelancer, you are sometimes faced with late paying clients.
A personal loan helps to cover your essential bills (power, phone bills, mortgage, etc.) until your employer sorts out their accounting issues.
What do you use personal loans for? Let us know – we can find you a better deal.
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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.