Personal loans are one of the most preferred types of loans in Singapore. The main reason for this is that there is no limitation on the way in which you can use money when it comes to personal loans. Even when you compare the different keywords which are searched in search engines pertaining to loans, you would realize that personal loans have a high search count.
With that being said, most of the common people are influenced by myths revolving around personal loans. These myths can actually cost you dearly when you take a personal loan. It is important to know the truth about these myths before approaching a licensed money lender for a personal loan.
Myth 1: Personal loans are the best way to eliminate credit card debt
Personal loans are no longer the best option to pay credit card debt in Singapore. Till a few years back, personal loans were indeed the best way but not anymore. MAS has launched a new financial instrument which is known as debt consolidation plan. This financial instrument is nothing but the type of personal loan which is designed specifically for paying off other liabilities. While personal loans can be utilized for expenses or liabilities, this financial instrument is specifically designed to free you of your other liabilities as it charges the lower interest rate.
Currently, HSBC bank in Singapore offers the debt consolidation plan at an interest rate which is 0.1%-0.8% cheaper as compared to the personal loans. While this saving might not seem significant but when you’re calculating it on an SGD $20,000 loan, you can easily save up to S $420 each and every year.
Myth 2: Personal loan is the most expensive type of loan
When you compare personal loans with collateral based loans like loan on a car, indeed personal loan might seem expensive. However, when you’re comparing it with other unsecured loans, you would realize that personal loan is not the most expensive.
Some of the other types of loans like payday loan are even more expensive. Similarly, credit card debt also stands more expensive as compared to personal loans. Even though many people are scared of taking a personal loan due to the high-interest cost but in certain cases, it is a better option as compared to some of the other loans.
Credit card debt normally costs you 24% interest per annum. On the other hand, personal loan costs 12% interest per annum. In such a case, it is better to opt for a personal loan rather than convert the credit card debt into longer-term loans.
Myth 3: Personal loans can be taken for buying luxury possessions like new TV
Even though banks as well as licensed money lenders do not have any limitations on how you can spend the personal loan, but that does not mean that you can opt for the personal loans in order to buy more liabilities and possessions.
Personal loans are affordable as compared to credit card debt but that does not mean that you keep on using them for buying more liabilities. Personal loans are more for emergency situations rather than personal shopping.
Some of the events when the use of personal loans is justified include surgery, certain medical emergency, wedding, etc. Also, before taking a personal loan you have to look at the repayment capability which you have and accordingly, apply for the loan.
You need to look into the monthly payments which you would have to make for the personal loan and thereafter opt for it. Only when you are ready to undertake this monthly liability, you should opt for a personal loan. Thus, if you’re thinking that personal loan is for shopping or buying luxuries, you are wrong.
Myth 4: Every licensed money lender charges the same interest
Many individuals assume that most of the licensed money lenders, as well as financial institutions, would be charging the same interest when it comes to personal loan. This is not true at all. The licensed money lenders, as well as financial institutions which are operating in Singapore, have large variations in the interest rate which they charge. The interest rate can vary from 9% per annum to 26% per annum in Singapore.
Thus, it is important to compare the interest rate of different money lenders as well as financial institutions before obtaining a personal loan. You do not just have to compare the interest rates but also you have to look at the penalties associated with late payments or any other charges levied on the issuance of the personal loan. Once you are able to look at the total expenses, it would be easier for you to choose the licensed money lender from whom you can obtain the personal loan.
Myth 5: You can opt for a personal loan only when you have a high credit score
The truth is that most of the banks, as well as the financial institutions, only take into account your salary as well as earning capability while assessing your personal loan application. You need to just have average or above average credit score rather than perfect credit score in order to obtain a personal loan. As long as you are having an income of about SGD $30,000 annually in Singapore, you would be able to obtain a personal loan.
Some of the banks like Standard Chartered even provide low-interest personal loans to individuals earning between SGD $20,000 to SGD $30,000 annually in Singapore. In most of the cases, it is the security of income as well as the income level which matters when you’re applying for the personal loan rather than your credit score.
Thus, before opting for the personal loan, it is important for you to find out the facts about personal loans. When you opt for a personal loan, you are essentially signing up for an added liability which you have to pay off by making monthly payments. Therefore, it is important for you to find out the truth about personal loans before signing up for one. You need to also assess the need for the personal loan before approaching a licensed money lender for the personal loan.