Are you thinking of taking a loan? You’re not alone. A study by Finder Singapore revealed that nearly 32% of Singaporeans have taken a personal loan in the past year. This should come as no surprise, as Singapore was also ranked the second most expensive city in the world to live in 2021.
However, taking a loan is no simple matter. It is a huge financial decision that can have long-term implications. It is important to think through it carefully and pick the best option for yourself. You will also need to manage your finances well to ensure you are able to repay your loan and benefit from it, instead of accumulating debt in the long run.
Here are several factors to consider before taking up a loan in Singapore!
What is your reason for taking a loan? This is the first thing to consider as it affects whether you should take a loan, as well as the type of loan to choose.
Most people borrow money to help them with expensive milestones such as their wedding, education, home ownership, and renovations. Others may borrow money due to emergency healthcare expenses or even vacations. Consider whether taking a loan is absolutely necessary and what the most viable option is for you.
Knowing your reason for getting a loan can also help you search for a suitable plan. Calculate the amount you need to borrow and the period you may need it for. This will help you to evaluate the offerings available.
Interest is charged by the bank or moneylender when you borrow money. This is the sum they earn for lending you the principal amount. Since the interest is often a percentage of the principal amount, borrowing a higher sum for a longer period means you will have to pay higher interest. Ideally, you want to look for a lender that can offer you loans with low interest rates.
Different banks and moneylenders may offer varying interest rates. The interest rate will depend on the institution, amount being borrowed, loan tenure and any existing history or goodwill with the lender. Interest rates may also fluctuate based on the current economic conditions.
You should also consider the interest rate when deciding on your instalments and repayment timeline. The smaller your payment instalments and the longer your time till repayment, the larger the interest.
Knowing the total cost of the loan is important. It helps you evaluate different loan options and decide on the offering that makes the most sense. At the same time, knowing the total cost of a loan enables you to plan your finances and repayment schedule.
The total amount that you repay will not be the same as the principal borrowed.
There are interest and other administrative charges that you are required to pay. This is what incentivizes moneylenders and banks to lend you large sums of money. Some banks even charge an annual fee.
Many people end up being unable to repay their loans because they set overly optimistic targets for their monthly instalments. Others fail to take admin and late payment fees into account. Calculating your budget and setting conservative figures for your monthly repayment can help you to follow your plan more easily.
Communicate with the lender and do your due diligence beforehand. Better yet, do up a spreadsheet to tabulate the effective interest rate given different repayment scenarios. You should also consider other fees such as late payment fees.
Loan tenure refers to the amount of time you are given to repay the loan. A longer loan tenure is usually preferred. It lowers the chances that you will be unable to repay your loan on time.
However, it is not always necessary. Sometimes, you only require the money for a short period of time. A longer loan tenure also has the con of dragging out repayment and accumulating higher interest.
Lastly, keeping your loan tenure in mind is crucial for planning your expenses and managing your repayment schedule.
Did you know that you have to meet certain requirements to qualify for a personal loan in Singapore? This is true whether you are borrowing from a bank or a licensed moneylender. You need to be aged 21 years old and above to be eligible for a personal loan in Singapore.
Banks also require you to have a minimum annual income of $30,000. If you are a self-employed individual or are unable to meet these requirements, you may turn to a licensed moneylender instead.
However, both banks and moneylenders will cap the loan amount you are eligible to based on your income. For Moneylenders, you may borrow up to 6 times your income, depending on your credit history, employment history, and other factors.
Considering these different factors can help you make a more informed decision when choosing to take a loan. There are plenty of institutions that offer loans to people who need them. Weigh the benefits and costs carefully before taking a loan and ensure you choose the best option for you.
It is also essential that you plan your loan repayment such that you can payoff your debt on time.
This prevents you from getting a bad credit score or getting blacklisted from banks and licensed moneylenders, which could force you to turn to illegal moneylenders if you need another loan down the road.
At Uniqcash, we are here to support you every step of the way as we recognize that taking out a loan is a significant financial decision. We provide a range of loan options with affordable interest rates and transparent costs. Finding a loan option that suits your demands and budget is our team's first priority. To learn more about our loans and how we can help you reach your financial objectives, get in touch with us today!