When taking out a personal loan, there are considerations to keep in mind. Considerations that both parties (lender and borrower) need to iron out before money exchanges hands. For borrowers, it can be tricky to navigate in a way that is both safe and poses less detriment to financial health.
To address this, we’ve prepared a guide that covers some of the essential details to know before getting a personal loan.
Of the essential considerations for a borrower when taking out a loan is the lender because different lenders will have different requirements, evaluation criteria, and application processes (more on that later) that may or may not be suited to your needs.
We recommend only applying for loans from credible institutions, such as recognised banks and licensed moneylenders. Resorting to unlicensed lenders or loan sharks will put you at high risk both financially and legally. When it comes to licensed money lenders, it is essential that you check if your lender is approved by ministry of law in their published list. Only borrow from licensed lenders to avoid predatory practices and to ensure that you are protected.
Lendingpot makes this easy by connecting you with banks and financial institutions that are already screened and approved by Minlaw via one simple application.
Next in the line of essential details to know before getting a personal loan is the amount of money you intend to borrow. The reason for this is that it may affect the number of lenders available to you.
Banks may be able to lend up to 8 times the monthly income of the borrower. Although, it’s worth noting that banks in Singapore only provide loans to individuals who earn more than S$30,000 per year. For individuals earning less than S$30,000 per year, licensed moneylenders might be ideal as they tend to have fewer and less stringent eligibility criteria. For licensed money lenders they can extend up to 6 times of your monthly income if your annual income is more than $20,000 and up to S$3,000 if the annual income is under.
To ensure the well-being of your financial health, it’s important to be conscious of what interest rates are tied to your personal loan - most notably, the effective interest rate (EIR). Effective interest rate refers to the specifics of your repayment plan plus processing and other costs. It also takes into account the compounding of the interest as you repay the loan.
Interest rates can vary depending on the lender you choose. Banks, for example, may offer effective interest rates of up to 6 to 8 percent per year, while licensed moneylenders may charge monthly interest rates that can go up to 4 percent per month.
Last but not least, before applying for a personal loan, you’ll need to be clear on how much time you have (or need) to repay your loan in full (also known as the loan tenure). Again, this can vary widely depending on the lender you select and the terms they set.
Banks tend to offer extended loan tenors, sometimes up to 5 years. This can be an advantage for borrowers who prefer lower monthly instalments and don’t mind spending a longer period of time repaying the loan.
Moneylenders, on the other hand, usually offer shorter loan tenors ranging between 1 to 2 years.
Taking out a personal loan doesn’t have to be a painful process. By keeping the aforementioned points in mind, you can set the foundation for a stronger and more secure financial position.
At Lendingpot, we aspire to create the best possible outcomes for every borrower on our platform in a way that is quick, cost-effective, and hassle-free.
With one simple application, we connect you to leading banks and financial institutions at no cost.
Learn more about the different interest rates available through Lendingpot. As ever, we remain committed to ensuring consumers get the financial products they deserve.
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