When you are in a difficult financial situation or need money to make a large purchase, several options are usually available. These include asking family and friends for money. Other options are borrowing from banks that offer traditional forms of credit, getting a credit card and government legalised money lenders that are based online provide personal loans.

Although it can be embarrassing and detrimental for relationships when you ask friends for financial help, a less-personal institution seems to be a better option. However, should you choose to take out a conventional loan like a mortgage or modern solutions? The following is a comparison between these options.

Applying

It is undoubtedly easier to obtain personal credit because of the requirements that are more lenient for qualifying. For bank loans, aside from asking for the applicant’s background, income and credit score, banks also ask about collateral. If you fall behind in payments, your property such as homes and vehicles used as guarantees of repayment can get seized by lenders.

On the other hand, personal loan providers will only look at your credit history and income.  They do not always require collateral and offer unsecured loans. Additionally, they accept credit scores at lower thresholds. It means that if you had an unstable relationship with liabilities in the past, the only accessible option for you is probably a personal loan.

Loan Purpose

Generally, borrowers can spend personal loans the way they want to, which is one of the key benefits of personal loans. When borrowing money from banks, the purpose of the loan gets determined from the very beginning, and the funds can only get spent according to the terms of the contract. A loan for a vehicle, for instance, can be used to purchase the car.

Security

No institution wants to accept applicants who are unlikely to repay. That is why sources of credit such as banks require collateral, in case you default and they can sell your assets to pay for the debt. Some personal loans do not need a guarantee, but these are usually more expensive. Moreover, you can depend on more reasonable loan amounts. In general, the maximum sum that is possible for these types of institutions is comparatively low, as much as $50,000 in many situations.

Repayment

Both options have fixed repayment periods that have been predetermined within the contract, typically from 12 to 36 months.

Borrowing Costs

A loan gets issued to you in the form of a lump sum. The fixed monthly payments consist of a portion of the quantity that you borrowed or principal amount and interest, which is the cost of getting the loan. In both types, a reliable lender will be specific regarding the interest rates and any additional fees that are applicable within the contract.

Interest and APR (annual percentage rates) determine the overall cost of acquiring a loan. Repaying the debt sooner means that you will end up paying less in total. For both tradition loans and personal loans, repayment is allowed before the due date. There are times when this may include some unforeseen fees.

Your online lender or bank offers interest rates that are affected by factors such as your credit score, the type of loan and the institution. In both options, the lender wants to be able to see whether your monthly income enables you to make the repayments as required.

Here’s How Personal Loans Compare against Traditional Bank Loans in Singapore

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