Personal loans are monetary advances given to qualifying individuals on the basis that they will repay with interest from personal earning. They are also referred to as unsecured loans or consumer loans. Qualification depends on a person’s annual income and credit score. Singapore is today among world economies where personal loans are popular. The fact that you do not need to have security as collateral for the loan makes personal loans open for anyone to apply. There are usually no regulations around the purpose or projects for the borrowed money. Leading statistical organizations in the world such as Google have reported increased interest from consumers for personal loans.
If you are looking for a licensed money lender, approach the process knowing that these financial instruments have their pros and cons. More importantly, know the misconceptions that could hurt your investment and learn how to avoid them before signing the dotted line. The following are the most popular misconceptions about personal loans.
1. Personal Loans are Perfect for Paying Credit Card Debt
Not too long ago, personal loans were great options for one to pay credit card debt. The same cannot be said of the Singaporean financial industry right now. Since the Monetary Authority of Singapore (MAS) introduced the debt consolidation plan, you should not pay your credit card debts using personal loans.
The consolidation plan has allowed personal loans to be the principal source of paying off other personal liabilities. The plan charges a lower interest rate, making it a suitable option. For example, HSBC Singapore has perhaps the nation’s lowest interest rates for debt consolidation and personal loans. It is 0.1% to 0.8% cheaper to use debt consolidation plan than personal loans to pay credit card debts. This means a difference in cost of anything between S$60 and S$420 for a loan of S$20,000.
2. Personal Loans are the Most Expensive Loan Types
The average interest rate of car loans, home loans and other types of secured loans is slightly lower than that of secured loans. This fact alone causes some people to think that secured loans are the most expensive loan types in Singapore. Consider other types of unsecured loans, and you will find that this belief is false. For instance, a money lender can advance a payday loan or a credit card cash advance whose interest rate is two times, three times or even four times higher than that of a personal loan. We must admit that personal loans are expensive, but we have to demystify the wrong belief that they are the most exorbitant.
3. Personal Loans Should Buy Just Anything
Few licensed money lenders will specify what you should do with your borrowed money. For this reason, borrowers often spend personal loans on entertaining their friends or buy the home entertainment unit that they could not afford in the past. Just because you can buy anything you like does not mean you should. Personal loans may be cheaper than credit card debts but should be treated with a little more importance. If you must take a personal loan, treat it as a capital for only a selected type of investment. The fact that you qualify for a personal loan does not mean that you must always take it. Beware crafty licensed money lenders who are out to capitalize on your ignorance.
Save personal loans for emergencies such as medical expenses, surgery after an accident and other once-in-a-lifetime events. What will you do when you have exhausted your personal loan limits and then an emergency strikes? Do not make a random purchase and end up incurring extra obligations that will take you months or years to offset.
4. Personal Loan Lenders Charges Are the Same
It is easy to conclude that most licensed money lenders charge the same interest rates. A quick comparison of financial information online can lead you to believe this myth. The fact is that the law in Singapore applies indiscriminately. However, individual lenders have the freedom to institute their own regulations up to a certain logical and ethical limit. For example, the regulations on qualifying for personal loans vary from one financial institution to another. The same is also true for fees and interest rates charged on personal loans. A careful study of all personal loan lenders in Singapore discovers that interest rates can be as low as 9% or as high as 26%.
This variation in charges applies for both interest rates and processing fees. In conclusion, it is prudent for borrowers to compare the EIR of various lenders and not just looking at the interest rates therein. In addition, penalty fees vary from one financial institution to another. Learn the penalties for defaulters and the rewards for early payers before taking personal loans.
5. Lenders Need High Credit Scores to Qualify
Anywhere in the world, a negative credit score will disqualify individuals from personal loans. However, you can still obtain a personal loan even with a low credit score. Lenders may decide to charge you higher as far as the interest rates or application fees are concerned. It is not prudent to allow debts to engulf you while you can offset it with a personal loan. In any case, most banks in Singapore do not base your eligibility for personal loans on credit scores. Your annual income can save you even when your credit score has gone down South. If you have an annual income of S$30,000, you can still talk to a licensed money lender. The interest rate at Standard Chartered is perhaps the country’s lowest for people who earn S$20,000 – S$30,000. Talk to leading providers now and apply for a personal loan today.
Most of these misconceptions and myths are advanced by borrowers who have been affected before. The fact that your friend, colleague at work or close family member did not qualify for a personal loan does not mean you will not. The fact that your cousin used his personal loan to host a birthday party should not convince you to do the same.
Sadly, there is too much information online and in the public domain about personal loans. While some of it is factual and correct, it is always good to do your homework. Have due diligence when approaching a licensed money lender. Discover all caveats such as hidden charges that may be advanced by some lenders.