The purpose of taking a loan can be categorized into just two types: an avoidable one and an unavoidable circumstance.
Avoidable purposes include getting into debt for unnecessary expenses. It can be from impulse buying, purchasing a concert ticket, or spending for a holiday. On the contrary, unavoidable events such as unexpected loss of income, accidents, medical needs, and emergencies may leave a person in need of financial assistance. They choose then to get a loan to temporarily cover the sudden need for a large sum of money.
Before you draw on a credit facility, think about why you’re borrowing in the first place. If it can be avoided, you should do so and just save money for it.
Before you borrow money
Getting a loan is a huge responsibility to handle. Before you get one, make sure the answer to the following questions is clear to you or read moneylender review.
- How much money do you need?
Only borrow the amount you need and can repay. Ask yourself if you really need to borrow money now or if you can save for it first. Also, don’t be tempted to get a larger loan even if you’re qualified for it.
- How are you going to repay it?
Loans should be pay in full monthly, regardless of your situation. Whether you lose your job or you get a salary cut, you still have to pay your debts.
Before getting a loan, consider the following first:
- Compute how much you’ll have left every month after you’ve set aside for your savings, expenses, and debt repayments.
- You should have an emergency fund that’s worth at least 3 times your monthly salary to cover you in unexpected circumstances.
- Always have some buffer cash. Expect an increase in expenses as time goes by.
- Can you manage the repayments?
Know the repayment schedule and how much will you be paying per month before you sign into an agreement. Always read the fine print and take note of the following details:
- Changing interest rates
Interest rates vary and even small fluctuations can have a big impact on your monthly repayments.
- Loan duration
Loans with a longer repayment timeframe are more costly. Although interest rates look lower for longer term loans, they’ll cost more when you compute the total amount and compare it to a short-term one.
Make sure that the repayment term is within your means.
- Will you consider a short-term loan?
A short-term loan can save you money in the long run. Even though you’re paying a higher amount every month, the total difference against a long-term loan can be massive.
For example, an S$50,000 loan with a 5-year term at 5% interest per annum will save you a lot more when compared to a similar loan to be repaid in 10 years.
Paying What You Owe
To avoid getting into a troubling financial situation, always repay your debts on time and in its full amount. This way, you’ll avoid incurring penalties and accruing interests which can greatly bloat your debt. If not, repay as much as you can using spare cash. However, some credit facilities charge pre-payment options, so make sure you’re aware of this too.
Always keep track of your debts. Juggling too many loans can be a risky task, so only open a credit facility when you need it.
If you’re having trouble in your loan repayments, contact your creditor immediately. You can also seek help from the Credit Counselling Singapore to assist in managing your debts.