Things You Should Consider before Taking Out a Personal Loan in Singapore
Are you in the market searching for a personal loan in Singapore? If the answer is ‘yes,’ it is crucial to be extra careful about lenders. Make the wrong choice, and you might end up paying more in interest costs than necessary. Note that this is not the only thing to check.
Some borrowers sign the loan agreement after reading only the banks’ promotional materials, but this is the wrong way to do things.
This post takes a closer look at loans to help you understand what to consider and identify the best option for your situation. It is necessary to understand what exactly you are getting into.
How You Will Use the Funds
Once a bank approves your personal loan application and releases the money, you are free to use it as you want. The keyword here is “personal.” Unlike a car loan or renovation loan, which requires money to be used in a specific way, you have a free hand when it comes to personal loans.
However, you should not take this freedom lightly because the loan will ultimately be repaid plus the interest.
The best way to use a personal loan is to put it where it will deliver the highest value. A good example is clearing credit card debts that carry high-interest rates so that you are left with the personal loan that has a lower interest. Other good uses include meeting personal expenses and financial emergencies.
What is the Interest Rate of the Personal Loan?
Because a personal loan in Singapore is an unsecured type of credit, you will not be required to provide collateral, such as a logbook or house. This pushes the interest rates up because the bank does not have collateral to fall back to if you default.
However, you should ensure to only borrow from the lender with reasonable interest rates. When still at the interest rates, it is important to appreciate the following:
The interest rate might vary depending on your credit score/ risk profile. If your credit score is low, the interest rate will be high. So, you might want to improve on the score before applying for a personal loan in Singapore.
Make sure to also understand the difference between effective interest rate (EIR) and applied rate (AR).
AR is calculated based on the assumption that the principal remains constant during the entire loan tenure. However, EIR is based on the actual cost of borrowing, factoring gradual reduction in the loan principal as a borrower repays.
Understand the Involved Fees and Charges
Apart from interest rates, it is also crucial to check associated fees and charges. Here are the main fees and costs that you should know about.
Annual fees
In addition to the loan’s interest rate, some banks have a fixed fee that you need to pay every year. This implies that if you have a three-year loan, the fee will be paid three times.
Late payment charges
It is crucial to give this charge special attention. You are slapped with this charge for making payment past the agreed monthly date.
Early payment fees
If you pay your loan earlier than expected, it might attract an early repayment charge. Banks charge this fee because paying early might result in the loss or reduction of their expected profits.
When searching for a loan, it is paramount to ensure that you get the best. A good way to compare the lenders, their interest rates, and more details that can help you make the right decision is using online lender comparison services.
As experts in the lending niche, they can see where you probably can’t and assist you to avoid possible hidden costs during the loan repayment journey.