Being financially responsible doesn't stop at never carrying a balance on your credit card. Because the truth is, we may find ourselves at a crossroad one day — an unexpected financial situation that may well be beyond our means. 

True financial responsibility is the ability to not only to avoid financial pitfalls but also to understand how to act when one inevitably comes up.

Crucial to your ability to manage unexpected financial changes is having the knowledge of what financial tools are available, and how to use them appropriately.

But if you do not understand credit cards, personal loans, balance transfers and the like, you could make the wrong choice in a financial emergency, creating more problems down the road.

Take, for example, personal loans. Perhaps it's because of Asian customs that colours borrowing money a subtle shade of wrong, or perhaps because nobody thinks they'll ever land in a situation that warrants a loan, personal loans in Singapore are considered a tricky territory to tread. 

This, despite personal loans being one of the most straightforward and easy to understand products, with competitive interest rates that translate to low cost of borrowing. 

In this article, we take an in-depth look into why you should use a loan.

WHY USE A PERSONAL LOAN? 

Personal loans, along with credit cards and balance transfers, are three of the most common financial tools available to retail banking customers (read, people like you and me).

Of the three, personal loans offer the most stable financial solution and are the easiest and most straightforward to manage.

This is because personal loans:

• Offer a fixed repayment period, providing clarity and certainty 
• Have fixed interest rates throughout, allowing you to stabilise your budget
• Have low interest rates, which translates to low cost of borrowing 
• Are available in a wide range of configurations, which means you are likely to find a loan that suits your needs

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These factors are crucial when a financial emergency occurs and you're considering the best form of funds to cope. Why?

Well, let's consider this. When climbing Mount Everest, slow and steady progress is the surest way to reach the summit.

Similarly, when you're staring down debt that looks like Everest, steadily chipping away at it, one monthly payment at a time, is the surest way to get clear. 

FIXED REPAYMENT PERIOD

Personal loans offer fixed repayment periods, which means to say they come with definite start and end dates. As long as you make your payments, you will be free of your debt by the end of the loan.

This gives you a sense of certainty because you have a definite forecast for future financial goals. 

FIXED INTEREST RATES

Also, personal loans feature fixed interest rates throughout the loan period, which means barring late fees or other penalties, you won't need to spend more than the stipulated repayment amount each month. This allows you to stabilise your budget, which is crucial in getting back to financial normalcy. 

LOW INTEREST RATES

All things considered, personal loans in Singapore have relatively low interest rates, which is why you should consider them as one of your first choices for funding.

There's no point borrowing at a high interest rate with high repayments that you can ill afford, creating another debt trap and causing you to go from the frying pan into the fire. 

WIDE RANGE OF CONFIGURATIONS

But perhaps the most favourable feature of personal loans is their wide range of configurations, giving you flexibility in the amount to borrow as well as the time range to pay it back.

Longer loan periods means lower monthly payments, so you should choose a loan package that suits your ability to pay back.

No point choosing a 3-year loan with monthly repayments that you struggle to meet when you will have a much easier time with a 5- or 7-year loan. 

Hopefully we have cleared up the misconception that personal loans are somehow 'evil', showing you instead the clear advantages as a financial tool. 

Here's a look at some of the personal loans available.

This article was first published in SingSaver.com.sg.