When is it a Good Idea to Take a Personal Loan in Singapore?

Are you caught in a sudden financial situation? To alleviate the severity of your problem, you can consider taking a personal loan.

Personal loan allows you to borrow money to pay for personal expenses, which you must repay over time. Things can quickly turn into a nightmare when you do not have the capacity to pay it back. This leads us to these questions: Is a personal loan nonideal? When is bad and when is it helpful?

How It Works

A personal loan is an installment loan that gives a fixed amount of money to the borrower. Its most appealing feature is its ability to provide funds for any purpose. You are not limited by one purpose alone.

When it comes to repayment, you can expect that the interest rate will be fixed. This repayment plan ensures that you get a relatively lower or more affordable interest rate compared to the interest rates offered by credit cards.

When Is It Harmful?

A personal loan can turn into a borrower’s nightmare when the funds are used for the wrong reasons. It is important to think about the consequences of borrowing instead of only focusing on addressing the unpleasant financial situation.

For instance, basic needs are supposed to be covered by your monthly income. You should not use a personal loan to cover your basic needs because these are recurring expenses. Imagine what will happen if you use your personal loan to finance your weekly grocery trips!

When Is It Helpful?

1. When you borrow money for a meaningful purpose such as medical emergencies or major occasions

Despite being a joyous occasion, weddings are expensive. From your wedding dress to your venue, an average wedding in Singapore can cost about S$30,000. With a personal loan, you will get to ease your cashflow by spreading out the payment at a friendlier pace.

2. When you have a strategic plan to pay the loan back

As a borrower, it is your responsibility to plan how you can pay back the amount. If you already know how you are going to spend the money, you should also know how you will be able to repay it. Moreover, it is important to only borrow what you need!

3. When you have the discipline to pay your loan/s on time

Commit to repaying your loan on time. Most personal loans become a burden for the borrowers when they fail to pay their due dates on time. Negligence can lead to penalties, making your personal loan seem unbearable.

4. When you want to consolidate your debts

Do you have multiple loans at high interest rates? If so, it is a practical idea to consolidate these outstanding balances into a personal loan with a lower interest rate. Doing this will enable you to choose your repayment terms and ensure that you can afford the monthly installments.

5. When you want to take the less complicated borrower’s route

Personal loans are less complicated to avail compared to other loans. In fact, many banks and financial institutions in Singapore allow you to apply for it online.

6. When you want to boost your credit score

You can get a small personal loan to improve your poor credit score. Just make it a habit to pay the installments on time and commit to your repayment plan! This works because your payment records will show lenders how trustworthy and reliable you are.

CONCLUSION

Personal loan allows you to borrow money to pay for personal expenses, which you must repay over time. It can either be harmful or helpful, depending on how you use it.

On one hand, personal loans can be used as tools for the right circumstances such as paying for your wedding day. On the other hand, personal loans can be harmful when you do not have a strategic repayment plan or when you use it for the wrong reasons. Weigh your options before committing to a personal loan.

Sources: 1, 2, & 3

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The Buzz Around U.S. Interest Rates: 3 Things You Should Know

It has been a story of “will they or won’t they” this entire year.

We are talking of course, about interest rates. The last rate hike in December 2015 was the first since 2006, and gradual hikes were expected in 2016 but the Federal Open Market Committee (FOMC) has ended every meeting so far with the decision to maintain interest rates. Market watchers are at the edge of their seats. The consensus is that a rate hike is looming and it could come as soon as November or December, when the FOMC next convenes.

In preparation for that, here are three things that you should know about a potential interest rate hike.

Will Markets Cheer or Jeer?

Here is a look at how the market has reacted to FOMC decisions lately:

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*Prices plotted based on the adjusted close price of the last day of each month

Lately, markets seem to breathe a sigh of relief whenever rates remain unchanged but it is really anyone’s guess as to how the market will react to the next rate hike.

There are reasons why the market could react positively or negatively. Markets could jeer, as higher interest rates mean heftier borrowing costs for companies and consumers. In other words, it could be a drag on the economy. But markets could cheer as well because a hike may mean that the US economy is back on track and that the FOMC is confident enough to remove its crutches.

How Did We Get Here in the First Place?

Interest rates are practically zero as of this moment. The graph below shows how interest rates have fallen to this point over the years:

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In the 1980s, to combat double digit inflation and the residual effects of the 1980 energy crisis, interest rates were hiked to about 20%. It stands in stark contrast to our current low interest rate environment. This low rate was a result of the global financial crisis; the US economy was hit hard by the crash in the housing market and banking sector from 2007 – 2009 and interest rates were reduced so that consumers and businesses could continue to spend and boost the economy. Interest rates have been kept low ever since as the FOMC has adopted a wait-and-see approach.

What Investors Should Take Note Of

There are two sectors that investors should keep an eye on – property and financial institutions.

It is easy to see why financial institutions will be affected. Their core business revolves around loans and their performance varies with interest rate levels. As for the property sector, it could go both ways. Higher mortgage rates make home buying more expensive, but the FOMC’s decision to raise rates could signal a healthy economy and a healthier economy could buoy the housing market.

And it isn’t just the US market we are talking about here. As money moves back to the US seeking higher interest rates, in a bid to stay competitive, interest rates in other countries may be increased as well. So do your research and pencil in these dates: 1-2 November 2016 and 13-14 December 2016. The market will be holding its breath as the FOMC convenes to decide whether the time has come to finally hike interest rates.

Disclaimer: This message is for general knowledge or information only. It is not an offer or invitation to buy or sell securities, futures or other products or services. Our products or services vary in different jurisdictions, subject to their respective terms and conditions and the licences our affiliates and us hold. This message is not an advice or recommendation for any financial planning, investment, legal, tax or other purposes and, accordingly, no responsibility or liability is assumed by us or our affiliates, whether directly or indirectly, from any person taking or not taking action

 

 

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The Perils of Short-Term Business Loans

It’s almost inevitable that life will have the occasional financial pinch. Having to meet financial deadlines is not just reserved to everyday life bills. Many times business owners, especially small business owners, are faced with the pressure of meeting deadlines for vendor invoices, inventory and payroll. When faced with tight financial situations, some business owners consider short term loans as a way to keep the ship afloat.

That being said, these loans come with their own unique risk profile that you need to be aware of lest you get trapped in the murky waters of toxic and unending loans. The short-term nature of these loans makes the borrowing process a little bit difficult for borrowers who have complex and below par credit histories. Before going for these loans, you must conduct a cost-benefit analysis to see whether borrowing on a short-term basis is more beneficial to a conventional long-term loan. Below are some of the perils of short-term financing for businesses.

Unfavorable Renewals

Though most short-term business loans are meant to paid off quickly, there are instances when you need additional time for repayment and this can put the lender in a controlling position making him sort of dictate the terms on which the contract is to be renewed. The new repayment plan may be less favorable to you because after all, the lender is in business. The newly accumulated debt can potentially push you into not only into business bankruptcy but also personal bankruptcy, which comes with its own set of perils.

Reputational Risks

If you rely on short-term loans as a business, investors may be worried or even turned off when they review your financial history. Most of the times, short-term loans hold on to specific asset classes as security and this give a picture that your business is not financially stable and is teetering on the edge of collapse. Also, the manner in which you handle your short-term financing can affect your ability to secure long-term financing in future.

Less-Than-Required Financing

Compared to traditional loans, short-term loans are much smaller. The reason behind this is that these loans are meant to be realistically paid off in a few months or year. If this is to happen, the principal plus the interest must be within the business financial radar to repay. If what you need is just a small loan to plug in a gap in expenses, this can work well with you, but if you want to replenish larger inventory items or boost your production so as to meet a deadline, this may not be enough.

Relatively Higher Interest Rates

The cost of short-term borrowing attracts higher interest rates compared to long-term financing. In the short run, the impact of these interest expenses may not be strongly felt, but when you look at your books a few years down the line, the cost may even double or triple that of bigger long-term loans. For instance, if the loan comes at a cost of about 25%, what this means is that your business must generate a rate of return higher than the cost of capital for the short-term loan to make sense.

Difficulties in Refinancing

As a business owner, having more flexibility is a great deal for you. This is because it opens up options making you adaptable to unforeseen circumstances or emergencies. However, refinancing short-term debt with another short-term facility can narrow your options. When you refinance, the new loan may potentially prevent the existing balance from getting low enough to enable you qualify for a credit facility by another lender. This may not be much of a problem if you are contented with your existing lender, but it can limit you if you want to cross over and shop for more competitive deals.

What Alternatives Do You Have?

Instead of focusing most of your energies on short-term financing where your bargaining power is somewhat limited and compromised by the urgency of your need, you can explore refinancing with long-term debt. This will save you stress and lower the frequency or size of your payments. Getting a line of credit can also be an option because then, you only pay the interest on the money you require and the capital is always available should you need it.

Though it is tempting, play your cards well and closely analyze the fine print before giving a short-term loan deal an okay.

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Personal Loan 101: Golden Information You Should Know

Like a kid in a candy store, consumers have various loans to choose from. From education loan to home loan, we shall look at personal loan through a microscope.

Personal loans are used for family emergencies, home furnishings, or consolidating other debts. These loans are often short-term.

1. APPLICATION PROCESS

You will be asked to complete a loan application that may include: your name, NRIC, date of birth, address, current and previous employers, length of employment, occupation, sources of income, total monthly income, and information about existing credit accounts.

Image Credits: Chris Potter via Flickr, (stockmonkeys.com)

Image Credits: Chris Potter via Flickr, (stockmonkeys.com)

Your credit card report includes your bill-paying history, amount and type of accounts you have, late payments, collection actions, outstanding debt, and so on. This along with your application shall help the bank decide if you are trustworthy and credible enough to pay the personal loan.

2. THE MORE PARTICULAR IT IS, THE CHEAPER IT GETS

When getting loans, be as specific as possible. The reason behind it is that loans that are particular often have lower interest rates. So, do not take up a personal loan to pay for a school debt when you can just apply for an education loan.

Personal loans tend to charge about 6% to 8% interest while Renovation Loan, Education Loans and etc. tend to have interest rates that are as low as 2%. Know what is best for your situation.

3. REVIEW YOUR OPTIONS

You may be tempted to immediately contact your current bank but that may bite you in the back. Personal loans and its interest change outrageously across time.

When there is less people borrowing from the banks (e.g., bad economy), they tend to lower the interest rates or give more lenient payment terms. So, look for a bank that is willing to give you the best offer and the maximum rewards.

4. WHAT HAPPENS WHEN YOU PAY LATE

Before venturing in, you must find out the clause of the payment penalties first. Like credit cards, it is not impossible to get an “interest adjustment” for a late payment.

Frets not…banks understand that certain circumstances such as unemployment or chronic illness can make it difficult to meet the bills. If this happens, contact your creditor, explain your situation and work out a repayment schedule together.

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