Episode 1: Instalment Loan, Balance Transfer, or Credit Line?

Don't make the mistake of getting the first personal loan you see - it could be completely wrong for your needs.

This is Episode 1 of the continuing Story of Rose and Jack, your average unhappy Singaporean couple. See them at SingSaver.com.sg's first TV commercial and watch what happens when you don't compare your options.

Jack: Aiyoh, we need to do something about my S$10,000 debt!

Rose: Selling off your toy collection might be a good place to start…

Jack: Weren’t you just looking at some loans?

Rose: Yes, and if you keep quiet I might just figure out what personal loan we can use to get out of this mess.

Jack: Just get the first loan you see. How different can they be?

Rose: There are personal instalment, credit lines, and balance transfers. Each one is so different from the other lah.

Jack: Instalment - that’s when you pay a fixed amount every month, is it? I think I could have paid for the PlayStation 4 using instalments…

Rose: That’s right. You need to know how much you’re going to borrow, and for how long. Then you repay the loan through a fixed amount every month.

Jack: Sounds like the solution to our problem. Just get it leh!

Rose: It’s not that simple. You have to compare personal loans first. Some loans have lower interest rates, and you save a lot of money on interest when you find the loan with the lowest rate.

Jack: You mean you need to pay interest when you get a loan?

Rose: Why you so like that? Of course you do! Do you think banks just give money for free?

Jack: I don’t know! Do I look like a banker to you?

Rose: *sigh* That’s how we got into this mess in the first place…

Jack:Did you say something?

Rose: Anyway. There are other loans besides the personal instalment. Maybe something else is better, though I don’t think a credit line can help us.

Jack: What do you mean, credit line? Don’t you mean credit card?

Rose: Nope, credit line. It’s like a credit card - you have a credit limit, and you can borrow as often as you want, and just pay for what you borrow. And like an ATM, you can use it to withdraw cash.

Jack: So it’s like a credit card, but you can get cash instantly through an ATM?

Rose: Exactly. But it’s not so useful now.

Jack: Why not?

Rose: Because if we borrow S$10,000 on a credit line to pay the credit card, we have to pay S$10,000 in full the next month. Otherwise, you get charged around 20% interest if you can’t pay.

Jack: So what then?

Rose: That leaves us with a balance transfer. Actually, this could be a good solution.

Jack: Balance transfer?

Rose: Yes. Basically you move your credit card debt to a balance transfer account, and pay lower interest. Some balance transfers even let you pay interest-free for 6 or 12 months!

Jack: So why not we just get it?

Rose: Let me think. If you can’t pay the full amount within the interest-free period, then the balance transfer will charge interest. And the interest can be as high as 20%.

Jack: We can pay it in one year right?

Rose: If we get a balance transfer for 12 months interest-free, we have to pay around S$833 a month.

Jack: Wah lauh eh!

Rose: But if we can get a personal instalment loan for 36 months, then we only pay around S$300+ per month, including interest.

Jack: But I don’t want to pay money on interest.

Rose: That’s why you need to compare loans lah. If you compare and find the lowest rate, you pay less interest and save money. And you even pay a lower amount per month!

* Rates assume annual income of S$30,000 or more. Rates may vary depending on annual income and credit score. Rates valid as of 8 June 2016