If you are looking for the best unsecured personal loan in Singapore, it is essential to understand how these loans work.
You need to know that a personal loan differs from other forms of borrowing like mortgages or car loans because it does not require any collateral.
However, this makes them risky for lenders as they have no way to recover their money if you default on your repayments.
As such, banks and licensed money lenders will have strict requirements before approving any loan application.
You must be 21 and make at least $20,000.
You must be 21 years old or above. Your income must be at least $20,000 per year. The payment must come from a job or business and cannot be self-employed.
Your debt-to-income ratio should be lower than 60%
A debt-to-income ratio measures your ability to pay back your loan. It is calculated by dividing your monthly debt payments by your gross income (before taxes).
So, if you have a $2,000 car loan with $1,000 left to pay off, and the amount you owe on the car is only $200 per month because you’ve been paying it off slowly over time
—that means that one-fifth of what you earn each month goes toward paying off that loan. Your overall debt-to-income ratio would be 20%.
But say instead that this vehicle was a more recent purchase for which you owe ten times more than its value:
After two years of having paid off about half of what you owed on it each month but still roughly seven times more than its value in interest alone after five years.
That $200 per month works out to be 30% of your paycheck left over every month. This example demonstrates why lenders consider how much money people spend on things like cars when deciding whether or not they are “creditworthy.”
A Credit Check is a must before you can get the loan.
This is because they are necessary to ensure you can be trusted with a loan.
Credit checks are done by banks and licensed money lenders in Singapore, which will help them determine your credit history and whether you have a good payment history or not.
Living expenses and emergencies.
An unsecured personal loan is not supposed to be used for long-term purchases. It would help if you considered getting a secured personal loan to buy a car, home renovation, or other significant investments.
An unsecured personal loan can help you with daily expenses and emergencies like medical bills or credit card payments.
Compare fees and rates.
As you begin getting a loan, comparing fees and rates for different banks and licensed money lenders is essential.
This is because the fees and rates vary among them. Some banks offer free credit checks, some offer free credit reports, and others provide free credit scores – but not all do. Therefore, checking this before choosing one bank over another is wise.
It is essential to understand how these loans work.
Know the terms and conditions of the loan
Understand how much you are borrowing and how much you will be paying back
Know how long the loan will take to repay
Make sure you have a plan to pay it back
Conclusion
Knowing the facts about personal loans is essential before you apply for one. Personal loans are great alternatives to credit cards and can be used for many different purposes.
However, you must understand how these loans work before taking one out, so do your research beforehand.
