Personal loans are a common way for people in Singapore to get money for big events, situations, or to combine multiple loans into one. Knowing everything there is to know about personal loans can save you time, money, and stress, whether you want to pay for a wedding, fix up your house, or pay for unexpected medical bills. Here is a guide with important things Singaporeans should think about and do before asking for personal loans.
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Find out about the different kinds of personal loans
There are two main types of personal loans in Singapore: secured loans and unprotected loans.
Secured loans need collateral, like a house or a bank savings. Since the lender is taking on less risk, they generally have lower interest rates.
There is no need to put up security for an unsecured loan, but the interest rates are usually higher. Most people get them for personal use, and it depends on your income, credit score, and employment situation.
Which of these two types you choose will depend on your finances and what you are willing to put up as collateral.
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Figure out how much money you need
Before you ask for a loan, you should be very clear about how much money you need and why you want to borrow it. It’s best not to borrow more than you need because the interest on bigger loans will make it harder to pay them back. For instance, if you want to fix up your house, carefully figure out how much it will cost and only apply for that amount.
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Look over loan offers
People in Singapore can get personal loans from a wide range of banks and registered moneylenders. It is very important to compare loan deals from different lenders. Here are some important things to look at:
- Read about yearly interest rates (AIR) and effective interest rates (EIR) to find out which one is better. If you look at the EIR instead of the AIR, you can get a more true picture because it includes processing fees and other costs.
- Processing fees: When you figure out the total cost, keep in mind that some lenders charge fees up front to handle the loan.
- Loan terms: Loan terms are usually between 1 and 7 years. Longer terms mean smaller weekly payments, but the total cost of interest is higher.
- Terms of repayment: Different lenders offer different flexible repayment choices and fees for paying off your loan early. If you want to pay back the loan early, make sure you know what will happen.
- Online websites like https://crawfort.com/sg/ can make it easy for you to check loan deals that are tailored to your needs.
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Look at your credit score
The credit score you have is a big part of the clearance process. The Credit Bureau Singapore (CBS) keeps track of Singaporeans’ credit scores. Having a good score makes it more likely that you can get a loan with better terms. Your credit score is affected by things like how quickly you pay back loans, credit card bills, and other financial obligations. Before you try to get a loan, check your credit report for errors and fix them.
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Know how much you can legally borrow
The Monetary Authority of Singapore (MAS) has set limits on how much people can borrow in Singapore so that people don’t take on too much debt. You can’t borrow more than 12 times your monthly income on any kind of unprotected credit, like a credit card or a personal loan. There may be exceptions for people with higher incomes (more than SGD 120,000 a year).
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Watch out for hidden costs
When you read over loan terms, make sure you pay attention to any extra fees or charges. Here are some popular ones:
- Late payment fees: If you miss a payment, the lender will charge you a fee. These can add up quickly, especially if you add them together.
- Early payback fees: If you pay off your loan early, some lenders will charge you a fee.
- Annual fees: Some loans have fees that are charged every year and make the total cost of the loan higher.
- Knowing what these fees cover in full helps you avoid spending money you don’t need to.
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Know the ratio of your debt to your income
The amount of your weekly income that you use to pay off your debt is called your debt-to-income ratio (DTI). Make sure your DTI stays reasonable, which means it’s usually less than 40%, which is the limit set by banks. A higher DTI could make it harder to get a loan and also put a strain on your funds, making it harder to pay back.
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Look into other options before taking out a loan
Before getting a personal loan, look into other options like:
- Using your savings: If you don’t need the money right away, you might want to save up instead of borrowing.
- Credit card balance transfers: If you plan to pay off the debt quickly, this is a cheaper choice because you may not have to pay interest on the balance for a while.
- Get a loan from family or friends: Borrowing from family or friends can save you money on interest, but you should be careful and make sure the terms are clear to avoid problems.
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Carefully think about licensed moneylenders
Sometimes, people who need personal loans in Singapore will go to approved moneylenders. Licensed moneylenders can give loans more quickly, but they generally charge higher interest rates and have stricter repayment plans. To avoid getting ripped off by loan sharks or people who aren’t licensed to give money, make sure that the people you borrow from are licensed by the Ministry of Law.
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Make a plan for paying back the loan
It’s important to have a solid plan for paying back the loan before you ask for one. Find out how the loan will affect your monthly budget and whether you’ll be able to make the payments without having to cut back on other expenses. Not making payments on time can hurt your credit score and lead to legal action from lenders.
Personal loans can help you pay for big costs or situations, but you need to be responsible when you use them. You can make a smart choice that helps you reach your financial goals if you know about the different types of loans out there, compare offers, keep your credit score high, and are aware of any secret fees. Always borrow money wisely, and make sure that the terms of the loan match your ability to pay it back without putting too much strain on your funds.