Term Loan and Credit Line | Personal Loan Interests Rates and Requirements
Loans | Personal Loansby Priyadarshini 28 July 2022
In this blog, we tell you the key differences between a term loan and a credit line in Singapore. Read about Term Loan and Credit Line below…
A personal loan is a term loan in which you borrow a specific amount, pay a one-time processing fee (or receive a waiver if the bank offers one), and make equal, fixed monthly payments for the duration of the loan. All interest and fees are calculated and added to your principal loan amount over the life of the loan. Your monthly repayment amount is simply the result of dividing the total amount by the number of months remaining on your loan.
A personal loan can be beneficial if you require a large sum of money (typically up to four times your monthly salary) to cover an urgent need or emergency expense that can be repaid steadily over a relatively long period of time.
A credit line, also known as a personal line of credit, is an overdraft facility that charges interest only when you withdraw from the account. Daily interest charges will only be applied to funds that you have used. This unsecured loan facility allows you to borrow up to four times your monthly salary, or more if you earn more than S$120,000 per year. And, unlike a personal loan, there’s no need to lock in your loan amount or loan term right away.
You also have repayment options. You can pay the minimum amount (usually 2.5 percent to 3 percent of the outstanding balance), make several separate payments over several months, or even clear your outstanding balance in weeks without incurring additional fees. If you anticipate the need to borrow money multiple times and want a convenient, flexible facility to draw from, a credit line is ideal. Keep in mind that banks frequently charge fees for opening a credit line as well as annual fees to keep your credit line account active.
A balance transfer is a type of unsecured, short-term 0% or low-interest loan that is commonly available on a credit card or credit line account. While a balance transfer typically incurs a processing fee ranging from 1% to 5%, depending on the bank and tenure, there are significant interest savings to be had if balance transfers are used correctly.
Instead of the high-interest rates of 20% – 26.9% p.a. that are typically charged on a regular credit card or credit line, balance transfers frequently offer a promotional 0% interest period of three, six, or twelve months. This is why, if you want to use a balance transfer to its full potential, you must pay off everything before the end of the promotional period.
A balance transfer is especially useful if you have credit card balances on multiple cards and are determined to pay off all debt within a certain number of months.
Pay off your debts
Paying off your loan requires a certain amount of discipline and grit. Despite the fact that it can be exhausting, continue to make loan repayments on time to avoid incurring unnecessary late fees and interest charges. Start budgeting and keeping a close eye on your expenses if you want to get out of debt. To avoid incurring additional debt, you must reduce your spending, particularly on credit cards. It’s also a good idea to start saving for an emergency fund once you’re out of debt, or if your financial situation allows, while you pay off your loan.