When most people in Singapore experience financial shortfalls, one of the go-to options is a personal loan. It is preferred because it offers the borrower a free hand on how to use the cash. However, personal loans have acquired bad reputations, not because they are bad, but from myths that are peddled out there.
The main reason for the bad reputation is that personal loans are not attached to a specific use. Therefore, some people end up using them incorrectly and sinking deeper into debts. The sensational stories by irrational borrowers can make you fear taking the loan, but we are here to get you the facts.
The truth about personal loans is that they are financial tools like others, be they car loans or mortgages. If you use them prudently, they come with numerous benefits. Keep reading to learn the six common myths about personal loans.
#1: Personal Loans are Not Good for Your Financial Health
This myth mainly comes from people who mismanaged their personal loans and sank deeper into financial problems. If you do not manage your finances well, it is true that the personal loan will be an additional burden, but it does not always have to end this way. Indeed, the reverse is true when you manage the finances well.
When going for a personal loan, you should direct to where it will have the maximum effects. For example, if you use a personal loan for debt consolidation, it is possible to knock down high-interest credit and be left with a low-interest loan that is easy to clear. For example, most credit cards in Singapore come with interest rates of more than 25%, while most personal loans are offered at 3-15% interest.
Using a personal loan to consolidate debts does not just help to pull the interest down but also makes it easy for you to clear the debt faster. For example, you can take a personal loan with a shorter repayment period to clear debts that could have taken longer to pay. This will also help to improve your credit score rating, making it easier to get low-interest loans from other banks in Singapore.
#2: It is Impossible to Get a Personal Loan if You Do Not have a Salary
This is another false argument put forward against personal loans. Some people will tell you that no bank will be willing to give you a personal loan if you are not employed. However, that is not how financial institutions in Singapore operate.
Financial institutions in Singapore are very flexible and can work with all people with a demonstrated a source of income. With about 8.4% of the population in Singapore being in self-employment, financial institutions understand this is a huge segment and will not lock them out.
What you need when borrowing money from financial institutions in Singapore is ensuring you meet the requirements they provide. For example, most of them require you to have a minimum income of $30,000 per annum. Therefore, you only need to prove that this target is reached even when self-employed by using bank statements.
Even for those who do not have an income of $30,000, some financial institutions might still be willing to work with them. This is why you should consider applying for a personal loan through loan comparison sites, such as Lendela. We work with a wide network of banks and financial institutions, and the chances of your application getting approved are very high.
As you can see, all persons in Singapore, including the self-employed, can qualify for personal loans.
#3: People Who Qualify for Personal Loans Apply for More than What They Need
This is another incorrect assertion you are likely to get out there. The argument comes from people who believe that simply because they qualify for a larger amount, they should go for the maximum. For them, extra cash at hand is awesome. However, this is not right!
When applying for a personal loan, looking at the maximum that a bank is willing to offer is a bad idea. The truth is that you will ultimately have to pay the money, and with some interest. Since the interest on the loan is calculated based on the amount that you borrow, larger amounts are likely to attract more interest.
If you find yourself lagging behind, the penalties that a large loan will attract will be larger compare to a smaller amount. Instead of borrowing the maximum amount that a bank is willing to offer, it will be a good idea to think about the actual need at hand and go for what is enough. For example, if you want to buy a new refrigerator and the cash at hand is not enough, only borrow what is enough to cover the deficit.
The good thing about borrowing a lower amount is that you can clear it faster, which will positively impact your credit score. This implies that next time when you need a loan, be it a personal loan, renovation loan, or car financing, it will be available at a lower interest rate.
#4: Personal Loans Require Applicants to Provide Collateral
People who have probably only dealt with mortgages or car loans might think that even other types of credit require collateral. However, this is untrue with personal loans. When you make an application for a personal loan, the bank checks the credit score and repayment ability to determine if you are creditworthy or not. Therefore, no one will come for your asset, be it a house or car, if you are unable to pay.
If you have a poor credit score, there is a risk of getting a personal loan with high interest. Therefore, it will be a good idea to start by working on improving your credit score before applying for a personal loan. For example, you should start by getting your credit report from Credit Bureau Singapore and have errors, if any, corrected immediately. If you get a personal loan with high interest, you might also want to refinance it later when the credit score improves.
#5: You Cannot Get a Personal Loan if You Have Other Loans
This is incorrect. Most loan providers in Singapore are interested in knowing whether you can repay the loan and the credit score to approve your loan application. Therefore, you might still be able to secure a personal loan even with another loan, such as a car loan or mortgage.
When it comes to other loans, this is actually a personal thing, and you need to think of how the overall credit will affect your revenue. If you have other loans already, it is advisable to avoid borrowing amounts that will take over 35% of your monthly income. Therefore, you might want to consider clearing some of the outstanding debts before adding a personal loan.
#6: It is Impossible to Repay Personal Loans on Time
This is false. If you fail to plan how the personal loan will be paid, the chances are that you will get late with monthly payments. This is likely to come with serious penalties and damage to your credit score. However, you can avoid the two problems by thinking about the personal loan before making the application. Particularly, here is what you can do to be able to pay the personal loan on time:
Only borrow the amount that you can afford to repay.
Make adjustments in your budget to cater to the monthly payments.
Consider some adjustments in your life to release some money and direct the money to pay the personal loan.
Automate the payment of the loan by instructing your bank to deduct the amount from your salary. This way, you will never miss making a monthly payment.
Use Lendela to Compare and Apply for a Personal Loan
Now that we have debunked the myths about personal loans, you can now appreciate that they are useful financial tools when used well. Therefore, do not get worried because you did not qualify for a car loan or student loan; a personal loan can come in handy. However, we must indicate that the process of applying for a personal loan is never easy for many people because of the long list of loan providers with different conditions. Imagine having to prepare dozens of applications and sending them to different loan providers? However, there is a simpler and more convenient method – using Lendela.
All that you need to do is check our website to follow their short process of application. See the demonstration below:
Visit Lendela website and fill an application for a personal loan. This should take you only a few minutes.
Get offers from different banks and financial institutions in Singapore.
Pick the personal loan with the best conditions. Then, Lendela helps you to book an appointment with the bank.
Sign the loan agreement, and the cash is deposited into your account.
If you are thinking of a way to get some money to bridge the gap in your finances, do not get distracted by the long list of myths about personal loans out there. Personal loans can be an awesome source of funds, but it is crucial to ensure you only borrow what you can comfortably repay. Make sure to use Lendela to receive tailored personal loans with the best conditions.