One of the first things that comes to our minds when we are struggling to make ends meet is whether or not to get a loan. It is very easy to apply for a loan in Singapore and that encourages many Singaporeans to make fast cash loans their first option.
But should it be? Taking a loan in Singapore comes with risks as well as rewards. In this article, we look at some of the factors that you should consider to make the right decision.
No one should take getting into debt lightly. Any agreement between you and a lender should be honoured to the letter. Besides the severe financial and legal repercussions of non-compliance, you could also face intense personal consequences. Here are the main risks associated with personal loan debt in Singapore.
Because the process to apply for a loan in Singapore is so quick and simple, it can encourage bad debtor behaviour. Some people who get into debt get addicted to easy credit. When repayments become tough with one lender, they simply move on to another without settling the existing debt.
This can lead to a dangerous spiral that affects the borrower’s immediate financial prospects and may lead to a domino effect on their credit score in the long term.
Loan contracts usually only require that you make a basic minimum payment regularly (often every month). However, this minimum amount only services the interest on the loan and not the loan itself. This means that you still owe the same core amount that you borrowed. You can keep making these small payments and still never get out of debt.
(Note, laws governing licensed money lenders in Singapore limit the total amount you need to pay back at no more than twice the original amount loaned to you)
Any lending institution, from every major bank to your neighbourhood licensed money lender, makes money from the interest they charge on loans. When you go into debt, you do not just owe the amount that you borrowed but also the interest that accumulates along the way. There are also fees and other penalties for late or missed payments.
The specifics may vary but you will always have to pay back more than you borrow with fast cash loans.
While every financial path may be littered with perils, taking on debt has its rewards, too. Don’t be discouraged and refuse to take a loan simply because you have been told ‘Debt is bad’. That is simply not true. Here are some of the main benefits of getting a loan in Singapore.
One of the best advantages of fast cash loans is that they live up to the name. If you are in urgent need of cash, a licensed moneylender in Singapore can give you initial approval within a matter of minutes. This process can even be performed entirely online.
While you will still have to present supporting ID and financial documents in person to the lender for final approval, the entire process can be as short as 2 hours.
You are in control
You could be borrowing money for your personal needs or your business but the stark alternative is usually the same: bankruptcy. If a court declares you bankrupt, you will lose virtually all say in your finances until your debts are paid off. That means opening up your personal finances to lawyers and accountants and having to accept the conditions they set.
A loan lets you keep away from this terrible scenario and maintain your finances (and dignity).
Debt is good for your credit score
Unlikely as it may seem, this is factually correct. One component of someone’s credit score is an assessment of their ability to manage a variety of debts. So, someone with a credit card, car loan, home loan, an overdraft account, and a personal loan in Singapore will have a better credit rating than someone who has just a couple of them (all other factors being equal).
A better credit score from handling a variety of debt can qualify you for bigger loans, better repayment terms, and lower interest rates.
Is a loan right for you?
As we have seen, there are both legitimate advantages and disadvantages when you apply for a loan in Singapore. The most important thing is to understand what you are getting into before you make a decision.
Most lenders offer complimentary financial advice – speak to your local lender and get the latest information to see if a loan is right for you.