Most of us will take up loans sometime in our lives, be it personal loans, home loans, car loans or a study loan. While home loans and study loans might be seen as essential types of loans due to the amount and purpose, others may be a bit more hesitant on taking up a personal loan.
This reluctance may stem from the idea that personal loans are usually a funding of last resort, or that taking it up may mean that you have reached a desperate state, preferring to maybe put your purchases on your credit cards instead. Not only that, some people may have the perception that it is hard to get an approval for personal loans due to a variety of reasons, so here are four misconceptions we want to clear up here for consumers to have a better understanding of loans.
Credit scores are definitely important here in Singapore, especially with the banks.But many people neglect the fact that you have other options when it comes to getting a personal loan – licensed moneylenders. Licensed moneylenders here maintain a separate credit bureau and are a little more lenient when it comes to your credit score. They are also less likely to reject your application unless you have a history of defaulting on payments.
You might think that in this little island, most financial institutions will offer the same interest rate on loan to remain competitive. But you thought wrong. From home loans to personal loans, different lenders offer different rates and you’d be surprise that there can be other factors that can affect which loan borrowers take up eventually.
Also, financial institutions may offer different loan rates depending on your credit risk status. It can be based on your ability to repay the loan, your financial needs and ability to put up collaterals.
Misconceptions 3: You should always go for the loan with the lowest interest rate
As mentioned in the point earlier, there can be more than one factor to consider when it comes to taking up a loan. While interest rates will be an important criteria since it will determine the overall borrowing cost, length of loan tenor, processing and administrative fees, prepayment penalties and ease of application can all affect which loan you ultimately choose.
Consider that you need a loan of $5,000 and would like to repay it in 3 months. Would you prefer to pay a slightly higher interest to get it paid in 3 months or stretch out the tenor to a year with a slightly lower rate?
Being employed will definitely help in your loan application, but you’d find that it is probably those that are not employed who needs borrowing more than ever! This is especially the case when many startup entrepreneurs may not have enough savings to tide them through the startup stage, or comes face-to-face with cashflow problems.
Schemes such as the Business First Loan, a collateral-free loan offered under SPRING Singapore’s Micro Loan Programme, is designed for new businesses to get funds in the quickest and most hassle-free way, with a flexible repayment period of up to 4 years. You will however, need a guarantor, as well as have the bank assess your company’s financial status.
If not, self-employed persons can apply for loans as long as they can give a legal proof of income and income tax statements.