Things To Consider When Getting A Personal Loan In Singapore
January 11, 2022
Getting a personal loan is a big deal. You have to carefully consider a slew of factors if you don’t want it to backfire.
For example, everyone knows that research is a critical first step before taking a personal loan, but that’s not the only thing that matters.
Often, people get into bad debt because they haven’t carefully considered their loans. So, you could avoid a lot of hassle if you read the article below.
We’ll take you through 12 things to consider when getting a personal loan in Singapore. That way, you’ll be able to repay your debt comfortably and get better off for it, with an improved credit rating and all of your problems solved.
Keep reading below.
1. Your Credit Score
Your credit rating is paramount before taking a personal loan. Here’s the paradox:
Many banks and even licensed moneylenders in Singapore place undue significance on that credit score. On the other hand, many Singaporeans believe that it’s unfair for a simple number to count that much to their loan approval.
There’s the good news:
You can leverage your credit score to your advantage when taking a personal loan. We’ll tell you how below:
- Get your credit score from Credit Bureau Singapore. Check every little data on the report you got to make sure all the info is correct. Sometimes, small mistakes slip up, such as unpaid bills that you’ve paid or name inconsistencies. If you challenge these mistakes, your credit score will rise.
- Work to improve your credit rating. Start by taking care of your bills and closing any lines of credit you’re not using. These improvements won’t escalate your credit score overnight, but you can show a licensed moneylender that you’re striving to become a diligent customer.
2. Your Preexisting Loans
Your preexisting loans can affect the chances of obtaining a new personal loan. The TDSR (Total Debt Servicing Ratio) is 60% in Singapore.
That means the totality of your loans’ installments can’t amount to more than 60% of your gross monthly income.
Let’s take an example:
Your gross monthly income is $5,000. You already have:
A car loan with a $1,000 monthly instalment and an HDB loan of $1,000/ month – that’s 40% of what you’re earning.
So, the next loan you’re taking can’t have larger instalments than $1,000/ month.
But that’s a lucky situation. Some Singaporeans have large unpaid credit balances that affect their chances of getting new personal loans.
Here’s what happens:
Your car and HDB apartment probably cost upwards of $350k together. However, a bank or licensed moneylender is more likely to consider that your car and HDB loan show stability.
On the other hand, seeing a $350k credit card debt will likely raise some eyebrows and a few loan rejections.
Pro tip: Work out a plan to repay any debt that’s not useful anymore or that doesn’t show your stability as a financial customer. If you are looking for a fast personal loan, apply with GS Credit and receive your cash in hours!
3. Your Reasons
Many people take personal loans for the wrong reasons. You don’t want to be one of those. Remember that loans aren’t easy money you can take without thinking of the consequences.
Ask yourself this: How will I use the money I get from my loan?
Imagine this situation. You have multiple loans with snowballing interests and pressing due dates. You’re struggling to pay one installment and, as soon as you do, you receive another notice for a missed payment penalty.
You don’t need to participate in the Squid Games to tackle this problem.
A reliable solution is taking up a debt consolidation loan from a trustworthy licensed moneylender. As you amass all of your debts into a single one, you will reduce your monthly installments considerably. Besides, you’ll only have to deal with just one monthly deadline.
Other good reasons for taking a personal loan include:
- Starting a new business
- Medical emergency
- Car repair
- Renovation costs
Of course, even those good reasons can turn bad in the blink of an eye if your motives aren’t pure.
For example, do you need to purchase a wedding dress bathed in Swarovski crystals? Are you consolidating your debt because you want to become more responsible, or do you need a free pass at another loan?
4. Interest Rate
Learn the lingo before choosing a personal loan option. Consider this paradox:
Many people are thrown back by the difference between AR (Applied Rate) and EIR (Effective Interest Rate) when looking at online loans. However, few take the time to understand what these terms mean:
- AR: the rate is always calculated from the initial loan amount
- EIR: the rate is calculated based on the gradual reduction of the amount you owe
Here’s what that tells you:
When comparing different banks and licensed moneylenders, don’t compare one creditor’s AR with another one’s EIR. These differences accumulate over time, even if you think that a rate’s a rate.
5. Other Fees
Your loan comes with various other charges that you should understand before committing to that loan. Here’s what to expect:
- Initial admin fee. Licensed moneylenders in Singapore can request an up to 10% admin fee when they grant you the loan. However, they’re not allowed to ask for this payment before approving the loan. The good news is that, for larger loans, some licensed moneylenders and banks won’t even ask this fee.
- Annual fees. Licensed moneylenders don’t ask for yearly fees, but some banks will request a fixed annual payment to manage your account.
- Late payment fees. It’s never a good idea to be late with your instalments or pay less money than agreed. In this case, the licensed moneylender will impose a late payment fee, that’s a maximum of $60 + a maximum of 4% interest rate on the missed payment.
- Early repayment fee. Some banks in Singapore can impose a penalty for repaying your loan early.
6. Maximum Loan Amount
Assess the maximum loan amount you qualify for before applying for a personal loan. The things that influence this sum are:
- Your relationship with your credit provider
- Your credit score
- Your citizenship
- Your monthly income
Some banks in Singapore ask for a minimum yearly income of $20,000-$30,000 before approving loans, but they can lend you up to ten times your monthly earnings.
By contrast, most licensed moneylenders in Singapore don’t have this requirement, but the most they can lend you is six times your monthly income and up to $250k. The good thing about private lenders is that they are able to approve your loan within minutes! You save a lot of time and effort.
Why should you double-check the sum you qualify for?
- To protect your credit score. If you apply for a more significant amount, the banks/ licensed moneylenders will reject your application. Multiple rejected applications in a short period lead to a decrease in your rating.
- To solve your problems efficiently. Knowing what you can borrow gives you the available budget to work with to solve your problems. It’s best to know precisely what you can get rather than make plans based on sums out of your reach.
7. Approval Speed
If you have an urgent financial issue, approval speed is paramount. In this case, you want to contact a licensed moneylender or a bank that will transfer you the funds within one or two days at most.
Here’s the catch:
Emergency personal loans usually get you less money. That happens because the bank/licensed lender has less time to check all your financial details thoroughly. Basically, emergency loans are riskier.
Pro tip: Never apply for an emergency loan hastily. Always consider all the other implications, including your ability to make repayments.
8. Loan Provider’s Reputation
The first thing you should check is the company’s customer reviews. These reviews tell a lot about their product and service. Reputable companies like GS Credit gained good customer reviews over the years.
You want to borrow money from a dependable, transparent source. Whether you’re working with a bank or licensed moneylender in Singapore, you need to ensure:
- They offer personalised packages.
- Their customer support is top-notch.
- They won’t lose your paperwork or bills.
- Steer clear of too-good-to-be-true offers.
- Read plenty of online reviews. Inquire about your loan provider on speciality forums or Reddit to know more about them.
9. Your Credit Card Limit
Let’s say you’re taking a personal loan with the same bank that gave you your credit card. In this case, be warned: they may decrease your credit card limit.
Here’s why that happens:
This situation is similar to taking a loan from a friend in many ways. If you already owe them money, they’ll impose a threshold on how much you can borrow next time.
Banks are doing the same thing, but that’s not necessarily bad.
In fact, imposing this limit will help you keep your overall debt under control. So, if you know you’re not diligent about your debt, reach out to the same bank that gave you that loan in the first place.
Before taking up a personal loan, make sure that you can afford the installments. Sure, the maximum legal TDSR is 60%, but can you actually fork out that much money?
For a person earning a $5,000 gross salary, that means a $4,850 take-home salary in Singapore. If you take a personal loan up to 60% of that gross income, you end up with just $1,850/ month to cover your other expenses.
Ask yourself this:
Do I really need a personal loan with this instalment?
- If the answer is no, then apply for a smaller loan.
- If the answer is yes, assess your monthly expenses. Cut back anything that’s not essential from that budget. Can you fit your loan instalment comfortably in the sum you have left?
- If the answer is yes, apply for that loan.
- If the answer is no, apply for a secured personal loan or someone to co-guarantee your loan. If you can’t do that, rethink the solution to your problems. For example, if you need a personal loan to fix your car, consider if you can delay those repairs for a few months until you’ve saved up some money. In the meantime, you could use the MRT.
This line of thinking brings us to the next point:
11. All the Alternatives to a Personal Loan
Perhaps getting a personal loan isn’t the best option if:
- You’re struggling financially.
- Your income is low.
- Your credit rating is low.
- You won’t use that personal loan for a fundamental problem.
For instance, if you’re already paying loan instalments worth 50% of your monthly income and your credit score is in the DD group, it’s probably not wise to get a personal loan for honeymooning in Florence.
Instead, you can consider:
- Saving that money
- Getting a second income source, such as renting a room in your home
- Asking your friends and family for help
- Applying for a government grant
12. Different Types of Loans
Consider the correct type of loan for your needs to solve your problems and get advantageous conditions.
For example, a renovation loan will get you a more affordable rate than a personal loan if you want to renovate your apartment. On the other hand, a personal loan offers you more flexibility – like getting the money transferred into your account and purchasing furniture too.
Alternatively, a secured personal loan can get you a lower interest rate and access to more funds. This solution is practical if, for example, your credit score is low because you missed some bills when you were unemployed but currently have a considerable income.
Pro tip: Consider if you should take a personal loan from a bank or a licensed moneylender. Sure, banks in Singapore have low-interest rates and grant you more significant sums, but they handpick customers with high incomes and high credit ratings. By contrast, licensed moneylenders are less bureaucratic and offer prompt financial solutions to most Singaporeans.
The Bottom Line
Like we said in the introduction, getting a personal loan isn’t a decision that should be taken lightly. You should assess all the factors that come into play and make sure that:
- You’re getting that personal loan for all the right reasons.
- You can stick to the repayments you’ve agreed on.
To ensure that, get a trustworthy licensed moneylender. GS Credit employs expert loan officers that draft customised plans targeted at specific problems, and we have some of the lowest interest rates in Singapore.
Apply from the best lender in the west now!