When you find that you are short on cash. And you urgently need a certain amount to bridge the financial gap, taking a personal loan can be a great help to you. Singapore has several ways in which a borrower can access money loans. These ways range from the banking institutions, licensed moneylenders and even the use of the credit card to get a short-term line of credit.
Even as most Singaporean borrowers only focus on the loan costs, there are several important points they also need to take note of. This they need to do before they decide to take any loan type. The list below gives some of the things a borrower needs to watch out for before taking a personal.
Fees and Charges
One thing borrowers need to understand is that banks and moneylenders are businesses as well. Thus there is never any logic for them to lend you money that does not attract any charges. Thus, for the 0% interest advertisements mean that you will be paying the fees in a different way. This is more often than not through what is known as an origination or processing fee. It is important for you to note that the origination fee is often times deducted from your approved loan.
The processing fee often will cost you 2 – 3% of principal loan amount. There are other fees you need to take note of. These fees include charges on change of the loan tenure, late repayment fees, cancellation fees and also early redemption fee. The early redemption fee is only charged when you choose to pay off your entire loan much earlier than scheduled.
When you are searching online for personal loan offers, you may end up getting confused by the many different interest rates that banks apply to price the loans they offer. Most times, you will see at least two different rates of interest. That is a nominal and an effective interest rate. And you will also notice that this former interest is generally lower than the second interest rate.
It is important to always remember to apply an effective interest rate (EIR) when you are comparing the different loan offers from the Singapore banks. The effective interest rate mostly takes into consideration all the compounding period and also the application fees.
It will then give you a better measure when you make a comparison between loan rates across the many different providers. Even then, do not forget to factor in the annual flat rate charged on loans. This will be what is needed in order for you figure out the amount of money you have to repay each month to the bank.
Therefore, it is better that you confirm your monthly budget. This way you will be able to know if these monthly repayments will be made without bringing you any financial strains in each month.
Your Credit Score
You can practically get personal loans quite fast in the recent times, with a few banks and licensed moneylenders promising to approve your loan in less than 24 hours. Nevertheless, this is only based on assumption that a borrower has an outstanding credit record. And this gives licensed moneylenders and banks no reason why they will reject your loan application.
Hence when you want to receive your loans approved easily, and then ensure that you have a minimal bad credit history. This also includes frequent late repayments of your bills and debts. Also, ensure that you have not sent several credit applications within the same period of time.
Borrow Depending On The Loan Purpose
If you have ever wondered why so many loan types exist when you are able to just take personal loans to meet your needs. When that was the case it means that a study loan can be replaced with a personal loan for paying your college tuition fees. And better yet have balance transfer loans to repay the credit card debt.
It is for this reason that particular loans are planned with a purpose in mind. And in most cases, the loans interest rates turn out to be much more competitive when compared to using personal loans.
Another main difference is in taking a loan for a specific purpose. This way you can get a lump sum to use as per your wish.
Minimum Loan Tenure
Most Singapore banks will require you to borrow a minimum period of 12 months on a personal loan. This is regardless of your ability to repay the $10,000 loan within 6 months. This ensures that lenders get an interested fee from a borrower. When you pay off a loan early will cause you a pre-payment charge. It is for this reason that borrowers who are looking to get personal loans need to consider the different options available when they are in need of cash.
For example, assuming you need a small amount like as $3,000, to pay off one-time hospital bills. It is not the cheapest choice for you to get a personal loan which you will then repay it within 1-year tenure. In fact, using a credit card can prove to be the better option for you instead.
E.g.: Total cost of a Personal loan of $3,000 for a 12-month period:
Principal Loan amount: $3,000
Processing Fees: 2% = $60
Yearly Flat Rate: 15% a year = $450
Monthly installment = $288
Total Loan Cost: $$3,510
Total Costs of $3,000 when using a credit card for a 3-month period:
Principal Loan Amount: $3,000
Annual Flat Rate: 25% a year = $188
Late repayment charges: $60 a month = $120
Monthly payments: $850
Total loan cost: $3,308
From the above calculations, it is clear to see that costs of making use of a credit card are lower. And this is only when you can repay a larger monthly payment for you to clear your debt much faster. Although a personal loan is used as a financial tool for bridging a financial gap before your next paycheck, do your research to make sure you get the best deal possible by making comparisons and reading our reviews on the list of approved moneylenders.