Factors for Personal Loan | What You Should Know For Taking Personal Loan

Loans | Personal Loans

In this blog, we tell you, things you must know before taking up a personal loan in Singapore. Read on to find out more… 

Must Know Factors for Personal Loan in Singapore :

What you should know before you borrow?

Prepare a repayment strategy

Personal loans are widely perceived to be bad. The truth is that it is not all bad. Loans serve a useful and, on occasion, profitable purpose. Assume you have money locked up in stock. Selling it at its current price results in a loss. So, take out a loan, pay interest on it, and repay it when the stock price rises. If the gains from the stock exceed the interest paid, you still make a net profit.

The real issue with personal loans is that many people do not have a proper repayment strategy in place. The usual strategy is to borrow money with the expectation that we will repay it in some way. This is precisely why one loan leads to another. It eventually becomes a vicious circle. As a result, borrow only when absolutely necessary, and be certain that you understand how and when you will repay the loan.

Banks adjust interest rates using risk-based pricing

Before approving your loan and the associated interest rate, banks evaluate your credit profile. Conventional wisdom holds that someone who desperately needs a loan or has previously applied for a loan has a “risky” credit profile. Customers who do not need a loan or have never applied for one have a “good” credit profile. As a result, the bank offers a different interest rate to each customer.

Pay off the loan completely before the promotional interest rate expires

Take advantage of the banks’ various promotional offers, but keep in mind that it is a loan, and as with all loans, always repay the full amount before the promotion period expires to avoid high-interest charges.

Avoid requesting multiple Balance Transfers

If you can’t repay a $10,000 BT in six months, the conventional wisdom is to pay off the outstanding balance during the promotional period and apply for another BT. This way, you can eventually pay off the debt by applying for a smaller loan each time. However, keep in mind that the second or third application may be rejected. This could be due to a variety of factors, such as exceeding your Total Debt Servicing Ratio limit. Banks are refusing to reveal the reason. Don’t borrow (at a higher interest rate) and expect your FT to be approved every time.

A lower percentage does not imply a lower interest rate

The first thing to keep in mind is that many loans are pre-paid. Normal loan rates are very straightforward. You borrow money and pay a fixed interest rate on it. There is no interest charged when you repay it. The interest is applied to the total loan amount and calculated for the duration of the loan if it is front-ended. The amount is then added to your loan, resulting in your total outstanding debt. So, even though you’re lowering the loan amount, you’re actually paying interest on the money you’ve already repaid.

That leads us to the Effective Interest Rate (EIR). This is especially true for Term Loans and BTs. For example, banks charge a low processing fee of 5% on a $10,000 FT ($500). However, because the loan is front-ended, the EIR is significantly higher. So, before applying for a personal loan with the lowest interest rate, carefully review the offer, terms, and considerations.

Your TDSR is affected by all borrowing

Every loan or charge in your name, whether for six or sixty months, has an effect on your TDSR. Plan your loans carefully so that a $5,000 FT or Term Loan doesn’t get in the way of a $500,000 home loan or a large car loan.

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