Things To Watch Out When Taking Up A Personal Loan
When you are short on cash and you require a certain amount to help you cope for a short period, taking a personal loan could prove to be helpful. In Singapore, you have several ways of accessing a personal loan. This can range from using credit cards for a temporary line of credit, licensed moneylenders or banks.
Although most borrowers in Singapore might only be focused on the costs of a loan, you will need to consider several other equally essential points before taking on a personal loan.
Carefully read through the list below before you apply for one.
Your Credit Score
It easy for you to get a personal loan in current times, even several banks promise authorization within a day. This, however, is provided that you hold a good credit score thus giving the bank no cause to reject you. Therefore, when you want your loan requests to get approved easily, make sure that you hold a minimal to no history of bad credit score. This may include regular late repayment of your debts or bills, as well as not having to send several loan applications at the same time.
Fees and Charges
If you have seen advertisements for personal loans that says “zero interest rates”, then it essential for you to recognize that banks are businesses as well, thus there is no point of them lending out money at no charges. In its place, you will be paying these charges in a different way, normally through what is known as processing/origination fees. At this point, it’s important for you to note that the origination fee is often taken away from your approved loan and frequently costs between 2 – 3% of the total loan amount.
Additional fees that you need to look out for may include charges for adjusting the loan tenor, cancellation fees, late repayment fees as well as early redemption costs should you decide on repaying your loan much earlier than projected.
Most Singaporean banks require that you to assume a minimum loan period of 12 months for personal loans, even when you are able to repay your $10,000 loan within 6 months. Banks do this to make sure that they are able to regain the interest fee amount from a borrower. Repaying your whole debt early will then lead to your incurring pre-payment charges. It is for this reason that all individuals looking at taking up personal loans have to carefully weigh the different options available to them when they require money.
For example, assuming you require a small cash amount, for instance, $2,500 for facilitating your repaying a one-time bill for the hospital. This might not be the most economical option for you to make use of a personal loan then pay it in a period of over 1 year. Actually, it will make a lot more sense for you to use your credit card instead.
Total fees for a Personal loan of $2,500 for a period of over 12-months:
Total Principal: $2,500
Processing charges: 2% = $50
Yearly Flat Rate: 15% a year = $375
Monthly repayment = $198
Total loan Costs: $$2,376
Total Costs of $2,500 using a credit card for more than 3-month period:
Total Principal: $2,500
Yearly Flat Rate: 25% for each year = $125
Late repayment fees: $60 a month = $120
Monthly repayment: $758
Total loan cost: $2,274
As you may notice the cost of making use of a credit card may actually be lower. However, this is given that you can repay using the larger instalments for each month. In so doing you will be able to clear off the debt at much a faster rate and in less time. This will also help you save some extra money and at the same time improve your credit rating.
Borrow According To Your Purpose
In Singapore, you are able to get so numerous loan types when you simply could take out a personal loan. Depending on the purpose of your loan, you need to consider whether to take a study loan or a personal loan for your college tuition fees. Or would you rather have a loan balance transferred to repay your credit card debts?
It is for this reason that specific loan types are structured with the intention in mind. And oftentimes, their interests are a lot more competitive when you compare it to taking personal loans. An additional key difference of taking a personal loan for a particular purpose might not give you a huge amount of money to utilize as you may wish.
Once you take a look online at the licensed moneylender for personal loans, you might get confused by the number of varying interests that banks use to set price for their loans. In most cases, you may see two interest rates that are different, the nominal as well as effective interest. From this, you will also observe that the previous interest is often lower compared to the latter.
Even then it is important for you to at all times to remember to utilize the EIR (effective interest rate) to help you compare the different offers from banks. This is because the EIR takes the compounding time periods into consideration as well as application fees. It then provides you with a better estimate when you are making comparisons of the loan rates from different loan providers.
However, make sure you do not make the slip-up of ignoring the yearly flat rate. It’s because this is the amount you will require to help you work out what you will be required to repay every month to the bank. Because of this, it is best that you make sure that your monthly working budgets are able to handle the repayments.
Although taking out a personal loan may be a very helpful financial tool to help you cope during the cash-crunch period, make certain that you take your time to do thorough research. This will help ensure that you get the best possible deal by making comparisons by using the above-mentioned pointers.