Taking loans is extremely common in Singapore where rising prices of housing and cars make it practically impossible for people to pay the full amount upfront. Besides individuals, corporations and businesses procure loans for investment purposes as well. Although there are many instances where procuring a loan is seemingly unavoidable, it is still important to consider the many different factors before you proceed to get a loan from a financial institution.
First of all, you need to think about the reasons behind getting a loan and whether that increase in financial burden is manageable given your current financial state. It is never as easy as just getting the amount you desire because you will have to consider how you are going to repay the loan in a timely fashion. What’s more, you have to spend time sourcing for financial institutions that provide the lowest interest rates as well as check your credit report before filing for a loan. If you are not careful, you might end up with a ton of debt that you have no ability to pay on time. Despite so, there are various ways and precautions that you can take to prevent such situations from arising.
Before deciding on the amount you should loan, check your spending and savings accounts so that you can plan and gauge how much you will need to keep for your day to day bills and groceries. The same goes for businesses and corporations as it is imperative to ensure that daily operations and bills for the upcoming months can be paid in full. All these considerations will then help you decide how much you should loan for your capital investments as it is always best to only take how much you need. If it helps, try to think of loans as the means to cushion and support your expenditures instead of completely relying on them to make purchases. Besides checking your finances, another key factor is to think about how important the thing you want to buy is; do you need it now and will it greatly improve your way of life such that it is worth taking out a loan for or can you afford to wait it out and earn enough money to buy it debt-free?
If you have thought through and planned your finances properly, be sure to factor in the monthly installments of debt repayment so that you can plan your expenses in advance. Not only will this prepare you for what’s to come, but it will also enable you to calculate the amount of time you will need to repay your debt in full. Remember that the longer you take to pay your debt, the more interest accumulates; making financial stability a huge factor when one evaluates the pros and cons of loans. If you are pondering about whether you should procure a loan, read on to find out more about the factors you should consider.
1. The Repayment Plan
The top two things that should run through your mind before getting a loan are the amount that you require and the actual amount you can afford. There can sometimes be discrepancies between these two figures as you may need more than you can afford. If that’s the case, it is probably wiser to wait it out until your finances improve before proceeding. On the other hand, if you can afford to apply for a bigger loan; one that is more than you need, just take the amount you need so that you can repay it faster.
One crucial point to note is that when you are checking your financial situation, it is best to have an adequate amount of savings that can last you through a few monthly repayments without compromising on your daily needs. This is because sudden and unexpected events might occur; things, like being laid off or needing to pay for a huge amount of expense, can cause your accounts to take a huge hit. In such circumstances, your repayment schedule will not change and you will still be expected to pay your installments on time. If not, your credit report will state a late payment and this will affect your likelihood of procuring future loans.
Depending on your expenditure, it is usually safe to calculate your ability to procure a loan by counting your monthly credit card payments, other loan installments and the loan you are planning to take to see if they total to around 35% of your monthly gross income. Another factor to consider is if you have the habit of regularly saving a good portion of monthly income. This will ensure that repaying your loan will not have a heavy impact on your other financial goals. What’s more, your savings will act as a safety net in the event that you are unable to fork out enough money for your installments.
If you are unsure as to how to gauge if your monthly installments will drastically impact your finances, try saving up the full amount in one month and see if it impacts your daily living expenses.
3. How Much Will You Be Paying Back?
While it is possible to research online and consult financial institutions about the total amount you have to repay, there are many factors that play a part in changing the amount you need to pay. For instance, interest rates are usually higher if you take a longer time to pay. Another factor is that you might be penalized if you settle your debt earlier than the end of your loan period. Make sure to read the fine print on your loan document before signing so that you are absolutely sure of all the terms and conditions.
If this is your first time applying for a loan, it might seem like a daunting experience. However, as long as you plan your finances carefully and have a good amount of savings, the repayment process will not be as arduous as you think; and your loan period will be over before you know it.