How to Choose the Right Loan for Specific Needs

When you need a sum of money, you may get on the internet and start searching for personal loans. But for someone who hasn’t taken a loan before, all the different types of interest rates shown and fees charged can be pretty daunting. Depending on your needs, always choose a specific loan as compared to a personal loan to ensure that you get the best rates.

Unique Features of Specific Loans

Renovation Loan

A renovation loan is useful when you want to spruce up your existing home and needs some extra cash for help. Most banks offer an effective rate of around 5% p.a. and you’d need an original quotation from your contractor before application. You can usually stretch up the loan tenor to about five years, and the maximum loan you can get is S$30,000 or six times your monthly income. The bank may give you a number of free cashier orders for free, after which you’d need to pay for them.

As you may know, home renovation costs can range between S$20,000 to even more than S$100,000. Sometimes, $30,000 will not be enough and you might have to either top up with  cash or take on an additional personal loan to ease your cashflow.

Study/Education Loan

For those who didn’t have their parents pay for their tertiary education, you might already be acquainted with taking up a study loan (aka education loan). Study loans are great for students because most of them do not incur interest during your time in school. The interest charges only starts upon graduation, which means that if you are hardworking enough, you can take up a holiday job and start saving to pay off part of that loan before it starts incurring interest.

Some study loans also provide additional allowances for students, but remember that taking up more loans means you need more time to pay off after you start work. Considering that many graduates may take their time to choose their first job, you should be prepared with a sum of money to service the loan when you need to start repaying it.

Car Loan

Unlike the renovation and study loan, a car loan is a secured loan. This means that as you take up the loan, your car becomes the collateral in case you default. The loan-to-value ratio is either 60-70% depending on the open market value of your motor vehicle, and the maximum tenure is seven years. The interest rates for car loans are at 2.78% for used cars, 3.4% for commercial vehicles and 3.18% for renewed-COE vehicles currently.

What About Personal Loans?

Compared to the above specific loans, a personal loan offers a lump sum upfront for you to use in any way you want. However, the interest rates are also higher compared to the specific loans. Personal loans are useful when you need to deal with emergencies and need a longer period to pay back.

Depending on your needs, you may consider using a credit card as a “loan”. Why is that so? In fact, a credit card acts pretty much like an interest-free loan for the first 30 days, after which if you do not pay up the card balance, interest charges and late-payment charges start kicking in. If you need a temporary credit line just to ease the cashflow for a month or two, it may be better to use a credit card instead of a personal loan. This is because the latter usually requires a minimum tenor of 12 months, which means stretching out the interest payments you are making per month as well. However, if you need a longer term financing, then a personal loan is a better choice compared to a credit card because the interest rates are much lower.

When you decide to take up a personal loan, there are a few things you need to consider:

• loan tenor
• processing fees
• effective interest rates
• pre-payment charges

Before you decide to take up a personal loan, have an idea of how much the loan will cost you, including all fees and charges, as well as the monthly repayments you need to pay for. This will ensure that you can afford the loan comfortably.

Shopping for a suitable loan? Check out the best personal loans in the market today.

Read More:

• Should You Take Out An Education Loan or Personal Loan For Your Higher Studies?
• Hacks to Get Great Rate When Applying for a Personal Loan
• What Are The Top Uses, Pros and Cons of Personal Loans in Singapore?
• 5 Tips On Renovating Your Home On A Budget
• 4 Tips for Singaporeans Trying To Sell Their Cars

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