Acabbe Villett

Main Menu

  • Home
  • Creeping inflation
  • Intermediate input
  • Market balance
  • Federal Housing Administration Loan
  • Finance Debt

Acabbe Villett

Header Banner

Acabbe Villett

  • Home
  • Creeping inflation
  • Intermediate input
  • Market balance
  • Federal Housing Administration Loan
  • Finance Debt
Finance Debt
Home›Finance Debt›Personal Installment Loans vs. Personal Line of Credit: How Do You Choose?

Personal Installment Loans vs. Personal Line of Credit: How Do You Choose?

By Mabel Underwood
March 11, 2021
62
0

In Singapore, there are 4 main types of personal loans: personal installment loans, personal line of credit, balance transfers, and debt consolidation plans. Of these, personal installment loans and personal lines of credit work quite similarly: they can both be used for almost any purpose, while the other two can only be used to pay off existing debt. However, personal installment loans and personal lines of credit have important distinctions that make them useful for different types of people and uses. Read our guide to the most appropriate use of an installment loan or line of credit so you can use them correctly.

Contents

How Personal Installment Loans and Personal Lines of Credit Work

A personal installment loan is a lump sum that you can borrow for a year or more at a fixed interest rate. During the term of the loan, you have to pay a fixed amount consisting of principal and interest, the monetary value of which remains stable. For example, let’s say you take out a S $ 10,000 installment loan over 1 year. flat rate of 5.5%. Since it is a flat rate, the total amount of interest you end up paying is S $ 550 (5.5% x S $ 10,000).

Month Principal remaining Monthly payment Main payment Interest payment
0 10,000 – – –
1 9,167 879 833 45.83
2 8 333 879 833 45.83
3 7,500 879 833 45.83
4 6 667 879 833 45.83
5 5 833 879 833 45.83
6 5,000 879 833 45.83
7 4,167 879 833 45.83
8 3 333 879 833 45.83
9 2,500 879 833 45.83
ten 1,667 879 833 45.83
11 833 879 833 45.83
12 – 879 833 45.83
Total 10,550 10,000 550

On the other hand, a personal line of credit is the total dollar amount that you can borrow at any time from your bank. You usually pay an annual fee to access this fund and only pay interest on the amount you have withdrawn from your line of credit at any one time. For example, suppose you opened a personal line of credit worth S $ 10,000. If you don’t borrow a dollar from this account, you won’t owe your bank a single dollar of interest. If you withdraw S $ 5,000 from your line of credit for 1 month, you will be charged interest approximately S $ 83 (S $ 5,000 x 20% / 12 months)

Personal installment loan vs personal line of credit

If you are trying to choose between getting a personal installment loan and getting a personal line of credit, the basic rule that you should adhere to is: use the installment loan for sudden and / or unavoidable expenses that are large ( and must therefore be repaid over a long period) and use a line of credit to supplement your unpredictable and / or inconsistent source of income for an amount that can be repaid relatively quickly.

Type of personal loan Best for …
Personal installment loan Sudden and inevitable large expenses
Personal line of credit People whose source of income is unpredictable or inconsistent
Balance transfers Pay off a small amount of a credit card or personal loan over a few months
Debt Consolidation Plans Pay off a small amount of a credit card or personal loan over a few years

Installment loans are great for financing large expenses that need to be paid off over time, as its repayment schedule is spread over a few years at a relatively low interest rate, as we have shown above. On the other hand, if you try to use a line of credit the same way, it can get very expensive. For example, suppose you take a S $ 10,000 line of credit and pay it off as if it were an installment loan over 12 months. Since personal lines of credit typically charge a 20% interest rate, you could end up paying S $ 1,083 in interest – almost twice what an installment loan would have cost you.

Month Principal remaining Monthly payment Main payment Interest payment
0 10,000 – – –
1 9,167 1000 833 167
2 8 333 986 833 153
3 7,500 972 833 139
4 6 667 958 833 125
5 5 833 944 833 111
6 5,000 931 833 97
7 4,167 917 833 83
8 3 333 903 833 69
9 2,500 889 833 56
ten 1,667 875 833 42
11 833 861 833 28
12 – 847 833 14
Total 11 083 10,000 1,083

Likewise, if you only had to borrow S $ 1,000 every two months, you’d be much better off getting a line of credit. Every time you borrow S $ 1,000 for 1 month, you only owe S $ 16.67 interest, which equals S $ 100 if you do it 6 times in 1 year. On the other hand, getting a personal loan of S $ 6,000 for 1 year would cost you unnecessary S $ 330 (S $ 6,000 x 5.5%) in interest. Installment loans are simply not flexible enough for sporadic and temporary uses.

compare the cost of a personal line of credit and a personal installment loan to show when the line of credit is better

Related posts:

  1. Synchrony named to Working Mother’s 100 Best Companies list for 2020
  2. The history of credit cards
  3. Good Debt vs. Bad Debt: What’s the Difference?
  4. 3 types of debt you can consolidate – and how to make them work for you
Tagscredit cardinstallment loans

Recent Posts

  • Here’s One Reason America’s Racial Wealth Gap Persists Across Generations
  • The economy is expected to grow by 6.4% this year
  • Is Affirm Stock Still Worth Buying After Flying 175% Higher?
  • Restaurants hope inflation will start to come down
  • 3 control modes commonly used in servo motors

Archives

  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021

Categories

  • Creeping inflation
  • Federal Housing Administration Loan
  • Finance Debt
  • Intermediate input
  • Market balance
  • TERMS AND CONDITIONS
  • PRIVACY AND POLICY