An article <a href="http://Read here.”>Asiaone Business which reported on how some big and young earners in Singapore are the big spenders and trapped borrowers.
Many people sometimes may need to borrow cash for personal reasons they have for example parents fell ill and requires some money to pay hospitalization bills (this could easily be taken care if earlier planning is taken care, read my other entry on managing your risk here), children education, and other possible reasons. Whatever reasons you may have, these are the things you should look for before taking up the personal loan:
TEN THINGS TO LOOK FOR BEFORE TAKING UP A PERSONAL LOAN
1. Is there really a need to borrow? Many times we do not really need to borrow. The worse type of loan is to support your lifestyle like car, expensive spa treatment, traveling, expensive hobbies, shopping etc. The only loan you should consider is when you want to use it to grow your business or urgent personal needs. (Read here about managing your cashflow)
2. Is there any other alternative beside taking the loan, for example if you can save up and delay the need, you could borrow from your family members and repay them over the period or use interest free installment scheme.
3. Are you always in debt? If the answer to this question is yes, try to use re-financing to clear the highest interest debt as soon as possible. You should possibly watch your expenses and eliminate all the credit cards that you are holding and only spend from what you have each month.
4. If this is the first time you are taking loan, remind yourself not to incur another loan during the repayment period. The habits always build up easily when you let your guard down.
5. Ask yourself how much can you pay per month and how much do you need to borrow? This will determine the duration of your loan. Factor this loan into your monthly expenses and aim to finish it as soon as possible if you are taking a variable payment or if not, check what is the early payment charge for fixed payment.
6. Always look for Effective Interest Rate (EIR) instead of Annual Interest Rate (AIR). EIR as the name imply will factor in any processing fee, insurance fee or sometimes discount on interest given by the institutions. This info is useful when you need to compare across different loan schemes.
7. For personal loan, it doesn’t mean that the longer the duration the higher the interest, or the bigger the amount the lower the interest, I have placed a chart here for your benefits of comparison so you get what I mean.
*The monthly repayment is for loan of $30k over a period of 1,2,3,4 or 5 years of loan repayment. It is just an estimation and the EIR is correct as of today. Please check with the banks for more accurate rate. All rights reserved.
8. It is surprising to see that our largest local bank loan interest rate is the highest compare to the other local banks and if you can see it is the foreign banks that are offering cheaper rate. I believe that because of the accessibility of the bank in your neighbourhood and also most likely you have an existing account with them, the bank can afford to charge higher. The foreign bank may need you to open an account with them or you may need to go to their branch to pay which could be inconvenient at time. Therefore beside the EIR, do check the ease of repayment.
9. Do find out what is the late payment fee. Some may offer lower interest rate but may charge you very high late payment fee. Ensure you do not miss your payment if you taking this type of loan.
10. Lastly, for those loan with overhead costs i.e. insurance fee or processing fee, you may need to borrow higher than your original amount. For e.g. If we use the $30k loan, the POSB has a total overhead fee of 4%, in order to get $30k, I need to borrow $31,250($31250*0.96 = $30k) which will result in higher EIR.
Hope this is useful for those of you who are considering taking up loan. Feel free to ask me any questions or share your experience on personal loans with the banks or any money lender institutions.
To read my other entries on personal finances, click here.
Since 2007, Michael Sim helps people to understand and better manage their finances. He holds the ChFC certification and currently works as freelance trainer and consultant. He also helps his client to understand and manage their finances using MSYF(Make Simple Your Finances). For consultation and business opportunities, please Email Michael.
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Thanks for that wonderful tips. I agree that you should not take out a personal loan unless you really need them. I, myself took out a personal loan last month for my daughter’s hospitalization and I paid it back on time. Now my daughter has fully recovered from her illness. I’m so happy! Taking out personal loan that time is really has a worth.
Hi solennV, glad you find the tips useful and more importantly that your daughter has recovered.
May I suggest that the next thing you should do next is to insure your whole family with a proper hospitalization plan you can get in the market. You should enhance your hospitalization plan to the highest possible coverage as they are the cheapest form of coverage in the market. You should look into one of the hospitalization plans in the market that cover pre-existing conditions (as long not in the excluded list) for your daughter as well for your whole family.
Excellent article. Do you have a preferred lender?
Hi Bill, I do not have a preferred lender as each lender changes the T&C and promotion in different period. The whole purpose of the article here is just to illustrate and educate the public on what the things to look out before taking up a loan.
Hi Michael,
Which is the best option to choose, either personal loan for 6months or ready credit for 6months..?
And which bank gives the best EIR (6months)
Hi Gobi, if you are looking at 6 month you can only look for ready credit as personal loan minimum period is 1 year in all major banks as I know. I am not a fan of ready credit as their interests are higher compared to personal loan. But they are good for fund transfer if you have existing credit loan. They love to offer you that so they can earn the interest subsequently. I assume you do not have so this doesn’t apply to you.
These are some of the common ready credit: (All in EIR ｐｅr annum)*
StandChart – No available ready credit/personal line of credit.
DBS Cashline – 17.62%(income >= $30k) – Min 1 year loan so this doesn’t applicable to you.
UOB Cashplus – 21% (income $20k-$29.999k) and 17.76%(income >= $30k). They have promotion till 25th Dec. No indication of minimum period.
OCBC Easi Credit – 29.8%(income >= $30k) and 17.95%(income >= $30k). No indication of minimum period. They have promotion for EIR 6.6% if you willing to go for 1 year loan.
Citi Ready Credit (Paylite or QuickCash) – 17.48% (no indication of minimum period or income requirement)
HSBC Line of Credit – 17.8% (no indication of minimum period or income requirement). There is discount if you are Advance/Revolution/Premier.
POSB Bank – No available ready credit/personal line of credit.
Conclusion: You can save some interest from the UOB promotion and the HSBC account holder. The OCBC one seems attractive if the promotion is still valid and you willing to go for 1 year loan package. Look out for promotion since this is Christmas season! Otherwise the rates for 6 months are pretty competitive across banks. Let me know which one you go for. :)
*Information are correct as of published. There are some technical terms you need to familiar, for EIR for a year and 6 months is different because of the period. For example, if I borrow from bank A for 6 months, they charge me EIR 8% for 6 months period, but if I want to compare it to another 1 year loan package that I have, therefore the EIR would be 16%. Disclaimer: I do not represent the banks above and purely offering my two cents of worth of opinion, do check with the Banks on the final T&C before you commit.
Really a great information, many thanks Bro :)
You are welcome! Do drop me a feedback on how this entry helps you with your decision.
In terms of EIR, aren’t balance transfers the best ? especially if you are looking for the short term that is 6 or 12 months. EIR are generally about 4 to 6.5% which is way lower that the personal loans.
Personally I have never taken a loan before, probably you can correct me if I am mistaken. For balance transfer isn’t that for existing loan that you have? Meaning to say if you have loan from bank A and you wish to save interest and therefore you transfer your remaining balance of your loan to another bank, hence the name balance transfer. Probably you can give an example on how a first timer taking a loan can do a balance transfer and save the interest. Thanks.
P/s: Happy New Year everyone!
Hey Mike,
I am planning to buy a house and running short of down payment money. Is it a correct way to top up that by taking personal loan from multiple banks? Is it even allowed?
You must be thinking why buy when not enough $$$ but as per my calculation, I still save money on my actual rent even if I pay home loan and personal loan installments…
Kindly advice if my approach is totally wrong!!
Thanks, Sans
Hi Sans, sorry for my late reply. Have been busy.
Hope this still comes in handy. From the institution/banks perspective, there is no wrong to take up personal loan to pay for downpayment.
From my understanding of your situation, if you are paying rental every month, (which in my opinion is fully interest) you should take some loans as long you have discipline to pay off every month and not letting it rolls. I would advice you to take fixed installment to instill the urgency and discipline to pay off. Human tendency is to pay interest if possible. (If possible, you could take some loan from your family members, and pay them over 1 year. A mixture of solutions is always good.) That is what I advice to one of my clients for their planning, and it makes sense for them.
For illustration purpose, say every month you pay $1k for rental, and for installment loan, you pay about $1k every month as well for the next 2 years, you still save on as some part of the $1k installment goes to your capital and some is interest whereas in the first case of rental, none of the rental goes to build your capital.
Hope it makes sense to you! Feel free to drop me an email at ifionesm@gmail.com.
Cheers,
Michael
Hi Michael,
I’m really confused about what is the purpose of EIR? Lets say I took a loan of $10,000 for a period of 1 yr, the interest rate is 6% and with processing fee of $80. I have to return a total of $10,680 by the end of 1 yr, the monthly repayment is $890. But the EIR can be as high as 11-12% which I do not know why as I only pay an extra $680 for interest. To me the interest rate of 6.8% makes more sense than the EIR? Kindly enlighten me if you may, thanks!
Regards,
WX
Hi WX,
I shall not go too much into technical terms. (which you can read here.) But in simple terms, effective rate takes into account the effect of compounding interest while simple/nominal interest doesn’t. You pay at start of the month or at the end of the month does affect the effective interest rate while nominal interest still stay the same. Sorry if I didn’t answer your questions totally. Anyone can explain better?
hi, everyone.. I need ur help please advise me.. I need to loan $40,000 SGD , i have 6 credit cards in sg.. i never tried getting personal loans before.. do u think i can get 40,000 loans from 6 banks? thanks
Yes you can but separately meaning if your income is $4k and assuming each bank can loan you up to twice your income, meaning to get $40k, you need to borrow at least from 5 banks with each bank loan you $8k. Do remember how much you can pay per month. Overborrowing will gets you bankrupt. Use the rule of 72. If the bank charges you 24% per year (eg the credit card loan), assuming you do not pay the capital but just doing the minimum payment, a $20k of loan will double every 3 years. End of 3rd year ($40k), end of 6th year ($80k), end of 9th year ($160k) and later on, you can never pay back. And this works too if you do investment too! Hope this helps!
Hi Michael, thanks for the info. I just want to know if it’s possible to get educational loans from 2 banks? I do not have a guarantor and my salary doesn’t meet the amount I need. Thanks in advance!
Hi Corrine, I won’t advice you to take up these type of loan as it incur higher interest than any other(eg home, educational, renovation, car loans.) For these type of loans, the bank does not check how you use the money as long you meet their criteria. So to answer your questions, you can take more than one bank of personal loans. Before you do that, you may want to research if there is any bursaries, foundations or organizations that you are eligible to apply depending on your situations. Check with the institution that you are applying if there is financial student assistance that you may apply. If it is local education, you can tap on your parents CPFOA if they haven’t reach their retirement age. If all means failed, if you are Singaporean, go and meet your MP at the Meet the People session. He/she might be able to help. Think twice before you commit into these loans. Lastly, always maintain a polite attitude in your dealings, you will never know it may just helps you. Let me know how it goes for your hunt. Drop me an email anytime at ifionesm@gmail.com. All the best!
Hi there thank you for the wonderful advice about taking up Personnal Loan,i was just wondering i need a loan of $10000 i am currently earning $23000 a year i have been to all banks n Ezycash but the maximum i can borrow is only $5000,pls advice,thank u si much
I believe most banks give up to 2x (some 4x like ezycash for salary above $30k but I do not think ezycash offers the lowest rate in the market, you might want to check out other banks as well) of your monthly salary, that is about $4k. So if you need to borrow up to $10k, you can get from 2-3 different banks. Just remember to be STRICTLY discipline on your payment and not to overstretch yourself. If you really need to borrow $10k (after reading this blog entry), I would advice to pay over a longer term than to try to squeeze to pay in short term (which may eventually make you feel not able to pay and then borrow more). In short, a discipline payment over a longer term is better than overstretched payment over shorter term and resulting in higher stress and another borrowing. All the best!
wonderful advice bro,tq
You are welcome bro! Feel free to drop me an email at ifionesm@gmail.com or post how this article has helped you if you don’t mind! Thanks! :)
Hi Mike,
Just saw ur blog today, hope i have saw it earlier….. i have credit card debt +money line for about 100k. But i want to clear it asap. I applied for a personal loan of 50k for a period of 3 years, at a interest rate of 6.99%. I intend to clear off my credit card debts first then use balance transfer from card to clear my moneyline amount. Or should i do vice versa? please adv… thanks.
Hi Audrey
Thanks for visiting my blog. Is unfortunate that you have incurred such a heavy debt with credit card and money line. As I do not have the info of your income and expenses as well as your background and payment plans, these are few principles you can follow:
1. Go to Credit Counselling Singapore for help. You need to attend their talk first before they can proceed to help you with your situation through Debtor Management Programme. Their link: http://www.ccs.org.sg/contact.php
2. If you think you can manage your debt size on your own or find the step 1 troublesome, you can consider the following steps
2.1 Is there someone close to you who can lend you to pay off some part of your debt? You can factor this “close-kin” loan into your payment plans which include your other regular loan payments. A mixture of solutions is better to help a debtor clears off his/her loans faster.
2.2 Look into your expenditure and income to see what is the comfortable amount you willing to commit each month for as long as the period of repayment plan. Is important that you go for fixed interest plans as they usually offer lower interest for the period of repayment.
2.3 Thirdly, if you thinking of doing balance transfer, always pay off the one which charges higher interest. As long loan A charges higher than loan B, my balance transfer is to clear loan A regardless what name of your loan! If you don’t know the interest, call your bank customer service hotline to find out. Upon balance transfer, usually bank gives you 1-6 months of lower interest just to entice you to switch to their loan package, take this time to pay off as much as you can from your bonus, your “close-kin” loan and whatever saving you have (not affecting your regular repayment plans that you already have or intend to have).
Hope it helps! Feel free to drop me an email if you need further assistance.
Michael Sim
Hi Mr M.
Nice blog.
I am planning to borrow around 3K and pay for 1year tenure.
I need your advice on which one to choose between the DBS Cashline installment plan and DBS Personal loan.
Thnks…
Thanks for asking. I have replied you through email.
Hey Mike,I am considering taking up a personal loan over a short period of time, say 6m,i just got off the phone with a dbs rep who suggested i open a cashline account with DBS, i already have a salary account with them, and do a balance transfer from the cashline account into my salary/current account, im definitely considering it since they are offering it at 0% for 6m(there is also the 12m option at 0%,in comparison to EIR 12-18% on average per. loans) with a one time processing fee 2.5% for 6m/4.5% for 12m ,the question is ‘what’s the catch’,i intend to use this money on a personal expense and not at paying some existing loan which thankfully i don’t have another, this sounds too good to be true and in my experience when it sounds that way it usually is, your thoughts sire!
Hi Utkarsh, usually banks do offer such 0% for minimum period of time – 6-12 months for a fee says 2.5%-4.5% per annum as you just listed. At first glance, it seems a good offer but habits do build up. The question you should ask is why one would need to take up such loan and pay a fee (even when it is low)? A debt is useful if we can use it to grow or leverage to grow our assets over a period.(6-12 months is too short for any sound investment). Any debt for expenses is not a good debt. Secondly, even though you are paying a processing fee, any point of time in the month if you are late in your payment, the banks will charge you late payment fee (which you will have to call in to request waiver and make payment promptly in future) and the banks will also start charge you interest at prevailing rate(24% pa) on the unpaid amount should you choose or not able to pay promptly. I would rather start to think how to save and invest rather than using advance/credit money for spending. Having said that, I am advocating responsible debt taking (as listed in this entry) and sound money management in medium to long term.
Hi Michael,
Thanks for writing up this blog. Bumped into it only after 2 years you posted it.
Im planning to get a personal loan up to $10k and Im currently earning $30k/ year. I once applied from POSB personal loan with interest rate of roughly 7% and my application was unsuccessful eventhough I have an income account with them for many years, they didnt even grant me an amount lesser than what i applied for. FYI the loan tenure I applied was 24 months. Can you please advice possible reasons why my application was rejected and are there any other alternatives to get a personal loan? Im thinking of taking up my policy loan from my insurance, is that recommended? You can reply me via email.
Thanks mike!