Over the last decade, there is a high demand amongst Singaporeans in applying for personal loans with either banks or licensed money lenders that are fully authorised by the government. But then again, what exactly is a personal loan? And how does it work?
Basically, personal loan is categorised under an unsecured loan by the bank. Meaning to say that, the bank will not ask for any further explanation and collateral as the word implies “personal usage”. These loans have much higher interest rates as compared to other secured loans such as mortgages, home loan, educational loan, short term business loan and etc. Also, personal loan is categorised as short term loan as they are usually pay off within one to one and half years. Thus, they are paid off quicker as compared to secured loans.
But then think again, should there be no collateral, so what are the criteria that banks look for when determining how much loan amount to issue? In Singapore, these banks will look through your monthly salary income and from there, they will decide on the loan factor as to how much loan amount is appropriate. For instance, let’s say you earn $5,000 every month and the bank offers up to 5X your income. This means that you are eligible to take up personal loan up to $25,000. Additionally, what are the price that tagged along with the loan? Adding on with the monthly interest rate, the banks usually add on an annual charges of $50 and above, depending on your credit score. Summing up this two factors, it will show you what are the total expenses associated with the loan package that you are signing up for.
When Should You Consider Taking a Personal Loan?
Before you take up a personal loan, you have to think thoroughly. Whilst it may seem alluring to take a personal loan for your own narcissistic or expensive materials such as a new set of computer or even taking up a personal loan for holiday purposes, it might not be the case. You should always think twice before you act, ask yourself if it is worth it or it isn’t? Do you need it? Because the interest rates for personal loan are relatively pretty high and it ranges from 10% and above. After all, you might end up spending 10% extra of what it is supposed to cost. So think again, do you really need it? Sometime you know you want something but then, you don’t need them. Ultimately, personal loans are not the ideal way to finance such “entertainment” and costly expenditures. Know the difference!
So, when would be the most ideal timing and situation to take up a personal loan?
There could be a handful of occasions whereby a personal loan would come in handy when you face with dire circumstances. Such instances, one of them is debt consolidation. In other words, it is about taking up a personal loan and merging your outstanding loans into one, at a lower interest rate. Another one would be where borrows want to consider taking up a personal loan to pay off a large credit card debt. As we all understand that the interest rates of these credit cards are pretty high, thus it would be more ideal to pay off the existing debt with personal loan that provide a slight lower rate.
Eventually, taking up a personal loan from licensed money lender might be a great alternative when it comes to taking up loans. In times of emergency, if you want to borrow money from the bank, you might not be able to do so. Because we all know that the loan application process usually take at least one working week and you might not even get approval from the bank. Whereas for licensed money lender, all you need is to fill up a online application and their professional finance advisors will call you with 24/7. They are professional trained and the loan application will take only up to 3 working days which is so much faster than the banks.