Getting a Personal Loan in Singapore? Consider These 5 Things

Wanting to buy a car or have your home renovated but don’t have enough money? A personal loan can give you the cash resources you need to follow through with your plan.

However, getting a personal loan in Singapore isn’t simple. For one, unlicensed moneylenders continue to prey on desperate borrowers. These loan sharks, locally known as ah longs, act friendly in the beginning only to charge you with exorbitant interest rates. If you’re not careful, you can fall victim to their schemes and get buried in more debt.

With that, it’s important to cover all your bases when applying for a personal loan. This way, you can ensure that the terms of your loan favor your financial situation.

Here are five things to consider when getting a personal loan in Singapore:

Is the lender licensed or not?

Never borrow money from an ah long. Not only do they impose impossibly high rates, but they also resort to harassment to collect your payments. These loan sharks have been reported to paint on debtors’ doors, scribble graffiti on walls and pull different kinds of malicious schemes just to force you into repaying the loan.

On the other hand, licensed money lenders in Singapore abide by the Ministry of Law’s guidelines for their lending activities and services. These guidelines dictate how much interest a lender can charge and the types of fees they can impose on borrowers, among others.

You can check the Ministry of Law’s FAQs page to learn how to differentiate loan sharks from licensed lenders.

Is the loan secured or not?

Most personal loans are unsecured, meaning they don’t require collateral. This puts the lender at a bigger risk, which is why unsecured loans tend to have higher interest rates.

Secured loans, on the other hand, can give you lower interest rates. But putting up collateral means you can potentially lose one of your possessions if you ever default on the loan.

Assess your financial capabilities to determine whether an unsecured or secured loan is the best option for you. If you want to lower your interest but can’t afford to put up collateral, ask your lender if you can have a guarantor. A guarantor is a person or entity who’ll assume the responsibility of the loan should you fail to repay your debt.

What are the penalties and fees involved?

Loans involve various charges and penalties that can add up to your total loan amount, such as late payment fees and admin fees. For admin fees, legal moneylenders can only charge up to 10 per cent of the principal loan amount.

You also want to enquire about late payment fees. Some people don’t ask about this clause since no one ever plans on paying late. But it’s important to take note of this fee in case something comes up that makes you miss your payment deadline.

Other charges you want to ask about are early repayment penalty, annual fees and change in tenure fee.

How flexible are the repayment options?

Some lending institutions offer negotiable repayment terms. These are the best lenders to work with if you have an unpredictable financial situation.

For example, you have a repayment term of two years, but because of an unexpected event, you need to lower your monthly payments. Some lenders will lengthen your loan term, adding a year or two, to decrease your monthly installments.

Is there a more specific loan program available?

Finally, consider getting specific loan packages that align with your goals. If you’re planning to renovate your house, get a renovation loan instead of a personal loan. Banks and other financial institutions tend to offer friendlier terms for these kinds of loan programs. They’re taking on considerably less risk when they know exactly what you’re using the money for compared to if you’re borrowing a lump sum for an unknown reason.

Specific loan packages, such as auto loans and education loans, often have lower interest rates. On average, personal loans in Singapore charge effective interest rates ranging from 11 to 14 per cent. Meanwhile, specific loan packages have rates as low as 2 per cent.

The Bottom Line

When getting a loan, make sure to shop around and compare lenders extensively. The loan should improve your finances, not put you in more debt. Before you sign any contract, make sure you’re working with a lender or institution that’s transparent with their services.

You can ask your friends and family for recommendations, but keep in mind that their financial situation is different from yours. You should still do and follow your own research since you’re the one who understands your needs best.

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