To Take or Not to Take? 7 Considerations for Applying a Loan in Singapore
Personal loans have become very common among Singaporeans as it is a fast and easy way for an individual to get a lump sum of money to support their needs. In 2020, nearly one in three Singaporeans had applied for personal loans to cover their cost of living which include buying daily necessities and paying their rent due to the financial impact of the Covid-19 pandemic. These were the reasons given by nearly sixty percent of Singaporeans that applied for personal loans. Personal loans can be helpful to Singaporeans with business ventures, living costs or in any emergency situations as personal loans can be approved within a week and in certain cases as quick as a day.
#1 Purpose of Loan
There are many pros and cons to consider when applying for a personal loan in Singapore. The eligibility for a Singaporean to apply for a personal loan is to be above 21 years of age and to have a minimum annual income of $30,000 for banks, and $20,000 for licensed moneylenders.
The first thing to consider is the purpose of applying for a personal loan. Some positive uses of a personal loan are paying medical bills, repairing household appliances, covering emergency costs and debt consolidation.
Meanwhile, taking up a personal loan for the purpose of extravagant weddings, luxury holidays and items are some purposes that are best to stay away from. Nevertheless, it is always advisable to take two steps back and thoroughly consider the purpose of the loan.
#2 Duration of the Loan
Most personal loans are used as a short term fix and this should be a factor when considering the duration of the loan, the interest rate and the amount that you are applying for. It is important to keep these factors in mind as it will subsequently impact our income, commitments and dues. The duration should be carefully considered when applying as it could have a large financial impact in the future which is why you are always advised to consult with a financial consultant before making a decision.
#3 Best Time to Apply Loan
When is the best time to apply for a personal loan in Singapore? You should factor your current financial position, your credit history and your credit score. All these factors will play a part in deciding whether you can get the full amount that you applied for. Other than those factors, you need to look at what the money from the personal loan is going to be used for such as medical emergencies, daily necessities or for business.
Other than these factors, the economy of the country also plays a big part as the interest rate and the availability of personal loans will vary depending on the situation of the country. If the economy of the country is bad, the interest rate will increase and the availability of personal loans will decrease and vice versa if the economy of the country is stable.
#4 Interest Rates
The next thing that you should consider is the interest rates of personal loans. Personal loans in Singapore are known for having high interest rates because it is an unsecured loan and it is not bonded to any collateral and any other of your physical possessions such as your car or house are not at risk.
There are many options of organizations that we can apply personal loans from and we should consider all options as some may have a lower interest rate compared to others and some organizations also offer discounts and promotions such as not needing to pay the first 3 months of interest rates when applying for a loan.
Other than the interest rates and promotions that come when applying for personal loans, we should also consider the hidden costs such as report costs, appraisal fees and administration fees.
#5 Repayment Period
The repayment term of your personal loan shouldn’t be long term as the total amount of the interest rates will increase if the repayment term is longer. Other than the repayment term, you can also adjust the repayment amount and arrange for yourself to pay a larger amount on a monthly basis to reduce the repayment term of your personal loan. You should also avoid late payments as the penalty will ultimately end up increasing the repayment amount of your personal loan.
#6 Credit Score and Financial Situation
The main factor that you should consider is your credit score and your current financial situation as this plays the biggest part when applying for a personal loan. Taking personal loans will help in increasing your credit score if you are able to pay back your loans on time. This will help for your personal loans to be approved in the future because of your positive credit score.
A positive credit score helps you bring trust between yourself and financial organizations as these organizations will approve your loans based on your credit score. A lot of Singaporeans have bad credit scores because they have never applied for a loan or because they have proven that they are not capable of paying back their loans and taking a personal loan which is a short term loan can be an easier way of increasing your credit score.
Other than considering how a personal loan will affect your credit score, you should also consider your current financial situation and we should make sure we meet all criteria such as having the minimum annual salary requirements and that you have a fixed income to make sure that you are capable of paying the loan back on time.
#7 Consider Other Options
Other than applying for personal loans, we should also consider other options as it may have a negative impact on your credit score if you don’t manage to pay back your loan payments on time. Other options that you can consider is to borrow money from family and friends as this will not have an impact on your credit score and you are borrowing money from people who trust you.
In conclusion, there are many factors that come into play when you apply for a personal loan that could have a positive or negative impact for yourself when applying for credit loans in the future.