Taking up a personal loan is pretty common in Singapore when you are in a prey of financial crisis. Be it a wedding, vacation, jewellery, gadgets, etc. personal loans precisely serve all of your purposes. Indeed, personal loans are not as difficult to understand as other financial products. Well, sometimes it is quite obvious that you are confused about the substantial aspects to watch out while taking up a personal loan. Here, we have consolidated the key factors that you need to consider while taking up a personal loan:
Take a personal loan according to your purpose: This is perhaps the most significant part of getting a loan. Singapore banks have structured specific loans for certain specific purposes. And the interest rates for specific loans are quite lower as compared to personal loan interest rates. If you have any specific reason to take a loan like home & property loan, car loan, education loan, etc. you must go for such specific loans to avoid higher interest rate. When you take a loan for a specific purpose, you may not get the entire loan amount at a time.
Loan tenure: Generally, the minimum tenure for personal loans is 12 months. If you wish to pay-off the loan early, then you have to pay the pre-payment charges to the bank. This is why you need to think twice before going for a personal loan.
Your credit rating: Singapore banks are promising a 24-hour approval for personal loans, considering that you have a good credit record. If you are looking early approval of your loan, then you must maintain a good credit history. Before applying for a personal loan, assess your credit worthiness, because your credit history determines your loan approval. Debts, late payment of your bills, too many credit card applications at the same time, etc. will lead to bad credit record.
Know the difference between a revolving loan and a term loan: A term loan is taken for a particular time frame wherein you need to pay fixed instalments across the tenure. Your instalment comprises both principal and interest amount. A revolving loan is usually a line of credit or an overdraft. You can get any amount up to a specified limit and you just have to pay the interest as long as the line is drawn. Once you repay the money, the credit line becomes available for you again. The interest rates charged on a revolving loan are usually high as compared to that of a term loan.
Fees and charges: You must be well informed about the types of fees charged by the bank. The fees and charges to watch out for are origination/processing fee, late payment fee, fee for change of tenure, cancellation fees, early redemption fee, etc.
Know the difference between nominal and effective interest rates: If you have noticed carefully the effective interest rates are very high than the nominal interest rates. When you compare personal loans from various providers, do not ignore the effective interest rates. Because effective interest rate is the one that you ultimately pay to the bank.
How flexible are the terms and conditions: It is always good to know the terms are conditions associated with personal loans. A good personal loan must have options that enable you to renegotiate the loan terms when you in a financial trouble. Renegotiation of terms and conditions may be in terms of extending the repayment period, decreasing the interest rate, reducing other fees and charges, and increasing the loan amount if needed.
Analyse your loan requirements and your monthly income carefully and then do the research to compare different personal loans from banks using the points mentioned above. Perhaps, this is the practical way of going ahead with personal loans.