Personal Loan vs Line of Credit – Which is Better?

a woman thinking if she should get a personal loan or line of credit

Amidst the present worldwide pandemic, lots of people are suffering financially. Some of the main stressors during this period are insecure jobs and finance. Having a family to support and financial obligations to upkeep can make it really difficult to make ends meet. Thankfully, some are entitled to the government’s monetary assistance.

However, it isn’t always enough as you go by the skin of your teeth. To further relieve cash flow difficulties or financial needs, some of you may be seeking quick cash advances through various financial institutions like banks or private money lenders.

Though taking out a personal loan or line of credit in Singapore isn’t always the only way. It should help you get through the tough times, keeping your head above water. Financial aid is beneficial, but it does not magically vanish your financial problems in mid-air. So, what exactly is the difference between a personal loan and a line of credit? Let us share with you the general idea of what they are.

Personal Loans and Lines of Credit Comparisons

Both options allow you to withdraw fast cash, but what makes them different? A fixed credit limit applies to a personal loan. Borrowers of this loan have only access to the approved loan amount once (a lump sum payment).

checking my personal loan on the laptop

They must repay through fixed monthly instalments until the debt is paid off within the specified time frame. Personal loans are generally unsecured, which means borrowers do not need to put up any assets or collateral to secure the finance.

Lines of credit act more similar to credit cards. When you are approved for a line of credit, the bank or authorized money lenders will advance you with a set credit limit that is ever-evolving. A credit line can offer you flexibility in accessing the money whenever you wish, as long as it is under the credit limit approved.

Borrowers of these lines of credit will only pay the interest rates of the amount borrowed. Once the outstanding balance is paid back within the monthly repayment period, the available credit limit will then be accessible over and over again.

The fees and charges vary for both financial aids. The interest rates are fixed for a personal loan application. At the same time, a line of credit usually offers a higher rate due to the flexibility of term loans. On top of that, borrowers only pay a one-time processing fee for personal loans, whereas they would need to pay a fee that renews every year for credit lines.

As for the loan tenure, each financial institution has terms and conditions for the duration for which the loan amount is sanctioned. Personal loans generally can go up to 7 years. In contrast to the line of credit, which is open-ended and the repayment period varies. However, the individual loan applicants will need to pay an early repayment penalty if they can repay the amount they borrowed earlier than the loan tenor. Unlike personal credit lines, borrowers can pay early without being charged a single cent.

How Can I Be Eligible?

Each monetary assistance differs. Therefore, they require distinct sets of qualifications. For sure, each lender’s eligibility varies, but to be eligible for a personal loan or line of credit in Singapore, most financial institutions will need you to fulfil the essential criteria like proof of stable monthly incomes, credit scores and liability of assets.

checking my credit scores eligibility

Personal Loans – Perks and Limitations

Still unable to decide? Here are some key points to help you make up your mind. Some of the best time to get a personal loan in Singapore is during emergencies, paying credit card bills or clearing your debts. Taking out this loan may not be ideal for financing a lifestyle beyond your means, as the interest rate charged might not be worth it. The perk of securing a personal loan is that the interest rates and monthly repayments are fixed from the beginning throughout the loan tenors, and you get to receive the lump sum amount. You must, however, pay back the total amount of your loan, even if you do not need it all.

Credit Lines – Perks and Limitations

The good thing about getting your line of credit is it enables you to access the funds on an as-needed basis. If your account is in good standing, you can make payments to lower your outstanding balance and then borrow again up to your maximum account limit. When you use the money, you will only pay the interest for the amount you borrowed. However, the downside to this is that the interest rate varies following the prime rate. You will also be charged the ongoing fee, which renews annually or monthly even if you do not spend the money in that period.

a woman calculating her financial loan amount using a calculator

Making a Decision

Remember, there is no one size fits all approach to anyone’s financial difficulties. Let’s say you get approved for a personal loan that is insufficient for your situation in the first place. You may have to go through the hassle of applying for another. The worst thing you want is to risk your credit score due to having an additional account. Moreover, if you get a line of credit when you don’t really need it, you will have to pay the interest rate and ongoing annual processing fee, which may be more than the one-time fee from a personal loan.

It’s best to get one you can pay back comfortably after considering how much you can afford, how much you can repay per month and how long you need to pay back the amount borrowed.

Consult JD Credit on your loan needs

JD Credit is a licensed moneylender in Singapore with many years of experience in the industry. Our vision is to achieve excellence when serving customers, provide the best information and finest service for our customers and lead in the money lending industry. Speak to us today to get low interest loans that help today!