Various financial firms in Singapore, from licensed moneylenders to banking institutes, offer a wide variety of loans. Some loans are tied to certain eligibility, for example, an equity term loan or a student loan for individuals seeking overseas education. There are also personal loans, which are not only popular but are also extremely beneficial for individuals seeking a short-term financial solution.
Here are 5 common misconceptions that may arise when you apply for a personal loan.
1. My credit score is negatively affected due to a personal loan
This misconception is not true. Your credit score is not affected because of obtaining or acquiring a personal loan. However, what does affect your credit score negatively is with defaulting on your payment or late payment. Most importantly, you should understand your own financial situation as much as possible before deciding to take up a personal loan.
For example, are you currently facing too much debt? This is when a consolidation loan can safely bring you out of this situation and manage your financials. Credit bureaus in Singapore are generally focused on your financial income and your payment history as it factors towards your financial capacity and trustworthiness.
2. Personal loan approvals take a long time
This depends entirely on licensed moneylenders and their loan approval processes. Some licensed moneylenders provide loan applications that can be completed on the day that you step into their offices. Previously, this misconception was true due to a longer approval time, but with more and more licensed moneylenders offering easy cash loans and a secure loan application process, personal loan procedures have become streamlined and straightforward.
There are still banking institutes in Singapore that might approve your application after 24 hours as long as your documents have been filed appropriately. Licensed moneylenders generally do not require a lot of paperwork for personal loans.
3. Same interest rate is charged among all licensed moneylenders
Not all licensed moneylenders and banking institutes charge the same interest rate due to different reasons. For example, licensed moneylenders have different criteria when it comes to loan application approval. Banking institutes, on the other hand, are seeking to avoid high-risk borrowers and thus raise their interest rates.
To ensure you pick the right licensed moneylender or banking institute, you should look at their interest rate and annual interest rate. For instance, in Singapore, licensed moneylenders are only able to charge up to 4% interest rate monthly.
4. Individuals with a low credit score are unable to acquire a personal loan
Despite having a low credit score, most licensed moneylenders or banking institutes are still able to allow individuals to apply for a personal loan. The most important factor to consider here is the annual income of the individual. This misconception stems from the assumption of borrowers.
Individuals who have a higher credit score are able to enjoy lower interest rates with higher principal amounts, while individuals with a lower credit score will face the opposite.
5. It is important to borrow the maximum amount for personal loans
While it might seem handy to have extra funds for any financial emergencies, you should understand that the cash you have will keep earning interest until the principal is paid in full. As such, you should only seek to obtain a personal loan that you require, depending on your financial situation, rather than opting to get as much cash as possible.
When it comes to taking a personal loan for a new personal hobby or a new tech, this financial decision should always be sought first. Personal loans should only be used for emergencies such as medical fees or education, and not for luxuries that you cannot afford.