What Are The New Limits On Loans For Moneylenders in 2019April 10, 2019
Today, we will be tackling one of the most commonly asked questions on the internet. Is it safe for you to apply for a personal loan in Singapore
Many beliefs about personal loans come from street hearsay, media dramas that dramatize the subject or childhood anecdotes. As such, your understanding about personal loans may not be the most accurate.
In this article, we aim to help you understand what a personal loan is and when is it beneficial to be taken.
A personal loan is a type of credit that you can take for personal reasons. This in practice means that the loan is not earmarked for any specific usage. Rather, unlike when you take mortgages or car loans, a personal loan allows you to use the credit for almost any reason. Another aspect that personal loan differs in is that it typically does not require collateral.
Personal loans are categorised as instalment loans. This means that upon approval, you would receive a lump sum of cash. From there, you would make fix repayments on a monthly basis until the loan term expires.
Are Personal Loans Dangerous?
Now that you know what a personal loan is, we can address the elephant in the room. Personal loans in of themselves of just tools. However, depending on how you use it and treat the repayment process, a personal loan can go good or bad.
Like any other type of loan, a personal loan gives you access to immediate cash or capital. In exchange, you will be required to pay back this sum plus interest which represents two factors:
• Opportunity cost of the moneylender in extending you the sum of cash
• Risk of a bad debt that the moneylender undertakes
As long as you have a plan to pay back your debt within a reasonable amount of time, there is no reason to expect interest to snowball out of control.
Having said that, the uses of personal loans vary greatly from user to user.
Questions You Should Ask Yourself Before Getting a Personal Loan
To help you decide if a personal loan is suitable for you, you can first ask yourself these questions.
The very first question that you should ask yourself is why you are getting the extra money for?
• Are you facing an emergency?
• Is it a need or a want?
• Must you attain the cash immediately?
• Can you reduce the amount needed?
Loans should not be taken on impulse or for the sake of fun. Rather, they are a powerful tool that can help you out in times of need. If used wisely, you could avert negative outcomes and even reap rewards.
Do You Have the Means of Paying Back the Loan?
As covered before, personal loans require that you pay back in monthly instalments. As such, you can determine if you have the means of repaying by forecasting your monthly income. This is inclusive of both active (e.g. salary from your work) and passive (e.g. dividends from your investments) income.
If your forecasted monthly income exceeds that of your regular fixed and variable expenses inclusive of the loan repayment, then you should be able to afford the loan.
How Long Will You Take to Pay Off the Loan?
There is a tension that exist when deciding how long you should take to pay off the loan.
On one hand, paying off the loan quickly would require that you increase the value of monthly instalments paid. This could put a strain on your day to day finances or be simply infeasible given your income.
On the other hand, taking excessive time to pay back the loan will lead to more interest piling up. In this event, the cost of the loan that you will have to bear increases.
It should also be noted that moneylenders often have a minimum monthly repayment sum and may have penalties for early repayment. These clauses reduce their risk of the debt going bad while also ensuring that they are adequately rewarded for the risk undertaken.
Common Uses for Personal Loans
Since personal loans can be used for a variety of situations, it is helpful to find out what their common uses are.
Consolidating Credit Cards
If you are a heavy user of credit, and have multiple cards charged to the max, then a personal loan could help to consolidate the charges.
Each credit card would have a separate Annual Percentage Rate (APR) attached to it. As such, if you are unable to pay off the full amount owed under a card, you would start incurring interest owed to the bank. Depending on the APR, a credit card’s interest rate might be higher than that of a personal loan offered.
In this situation, you should strongly consider consolidating your credit card debts into a single personal loan. If planned correctly, you will end up paying less.
Medical conditions and their corresponding hospital bills can be a highly tricky issue to tackle. Obviously, certain treatments are time sensitive and cannot be delayed. As such, if you do not have the financial means to meet the cost of treatment, a personal loan would make sense.
However, you should be aware of payment plans that the hospital may have in addition to your credit card’s interest & repayment plan. If a personal loan affords you a more favourable repayment option, then you could pursue it.
It is not always possible for couples to cut back on their wedding’s expenditure due to a variety of reasons.
The challenge here is that in a single day, you would be charging your credit card a huge expense. If you do not have large savings and are unable to pay off the debt within a month, a personal loan with lower interest rates would be a better alternative.
Trust JD Credit For Your Personal Loan
JD Credit is a licensed moneylender in Singapore with many years of experience in the industry. Our vision is to achieve excellence when serving customers provide the best information and finest service for our customers and lead in the money lending industry.