Nobody wants to make a mistake when it comes to taking a loan. However, taking a loan without making any mistake can be challenging, especially if it is your first time. Unknowingly, we make mistakes that not only cost us time, but also cost us money. But the interesting thing is that some of those mistakes can be avoided just by learning from others who have made mistakes before us. Here are five common mistakes that Singaporeans make it comes to taking a loan to avoid regretting like many others.
Ever came across a situation where every loan package you are offered seem to be offering the same thing? While most loans come with similar terms and condition, the truth is that every single loan package is different. Each loan package was designed to cater to different customer’s credit needs. Some loan package might offer better interest rate with higher monthly repayment while others might come with slightly higher interest rate but allows you to loan for a longer period.
So, if you are looking to take up a loan, be it property, car or unsecured loan, you should always shop around for the best deal to fit your own needs.
Did you know that car loans come with front-loaded interest? This is unlike a property loan where the interest amount is calculated depending on your outstanding loan amount? Did you also know that not every type of loan allows you to repay your loan early? Some banks penalize you for repaying your loan early with an early repayment fee. If you are in the midst of considering different loan packages, make sure you find out every hidden fee you need to know from the bank. You should also be careful of those fine prints if you are looking at loan advertisements.
Each of us have friends that have been through the same loan process. Each of them will bound to have a different loan experience with the bank, be it good or bad. Thus, when it comes to your turn to take a loan, they have plenty of advice to offer. While advice are often welcome, it is vital that you verify their advice against the facts. This is because banks’ practices can change and the change can have a different impact on your loan compared to your friend’s situation.
Refinancing is the act of switching from one loan package to another. Refinancing is typically available in the 2nd or 3rd year after signing up for a loan package when the lock-in period is over.
There are multiple reasons why you should refinance your loan when you have the chance. Firstly, you can reduce your mortgage payment by signing up for a loan package with lower interest rate. It is an industry norm for banks to adjust their interest rate on a yearly basis. Secondly, refinancing allows you to shorten your loan if you have a lump sum of savings to pay off part of your loan. Thirdly, you can choose to switch from variable interest rate (e.g. SIBOR) to fixed interest rate loan if you foresee interest rate to be rising in the coming years.
In short, refinancing can help you save money if you do it right.
All debt are bad and should be completed avoided. Well, not quite. Sometimes, debt can sometimes help you when it comes to taking a loan. When you enter into a debt, your debt repayment will be tracked by Credit Bureau Singapore (CBS). CBS will compile a credit score for you to give banks an estimate of how creditworthy you are. If you are always making loan repayments on time, it indicates that you have a good credit worthiness. With that, you can avoid being overcharged on interest rate.
That being said, while a small debt can be helpful, taking on too much debt can also be detrimental to your credit score. Make sure you don’t take up too much loan at once.