The Dos and Don’ts of Personal Loans

Personal loans are easy credit that a person can secure if they are earning the required income. These loans don’t require any collateral, so the tension levels are lower for the borrower. And to add even more appeal, they don’t bear any questions on what, why, how and where you might use the money. You have freedom to use it as you please. If you’re earning a stable income, any bank would be happy to give you a personal loan, especially the bank at which your salary is being credited or your current account is held. But personal loans interest rates are quite high because they are unsecured. The banks don’t hold any collateral against you and therefore it is more risky for them. Though anyone with common sense would use this money productively, you’d be surprised at how many don’t.

Why take a personal loan?

Do’s – Personal loans are easily available and processed quickly. Banks don’t need lengthy paperwork from you. If you’re earning the minimum income and you’re above 21 years of age, personal loans can be secured in a matter of days. The process of approval and disbursal is speedy and transparent. So if you need money quick, a personal loan could work for you.

Don’ts – Don’t take a personal loan just because you’re eligible for one. Personal loans are fast money, but that doesn’t mean you should take a personal loan to fund your whims and fancies. Buying unnecessary stuff because you like it or always wanted it is not advisable. Don’t use a personal loan to offset daily needs either. You’d only end up in more and more debt to pay off your old debt. The high rates of interest that personal loans carry will make any plan to cover daily or monthly needs backfire. The best thing to do is to curb your lifestyle till you can afford it, or borrow money from friends or family that bear no interest.

For what can I use a personal loan?

Do’s - Take a personal loan only when you really need it. You might be in need of extra finance to fund an emergency situation, to clear a debt that can wait no longer, to complete that long-awaited home makeover or any situation where you might absolutely need the money. Clearing one debt with another is not recommended, but if it is absolutely the breaking point, a personal loan might be your saving grace.

Don’ts – Don’t use personal loans foolishly. You could use it to fund a vacation or treat yourself to some retail therapy. You could indulge in spa treatments and pamper yourself to some therapeutic services. You could even gamble it away and you won’t hear a peep out of the bank. But don’t do it! Don’t use a personal loan for stuff you really don’t need or can’t live without. You not only have to pay it back, you also have to pay a high rate of interest.

What to look for in a personal loan?

Dos – Look for the minimum and maximum amount a bank will offer you. Check out and compare different banks and their rates of interest. See the different EMI options and tenures available for you to pay the loan back and choose a tenure that will not put too much financial strain on you. Also don’t choose a tenure that’s too long as you will be stuck with the debt for years and this might ruin your future plans of taking a specific loan for a house or a car for instance.

Don’ts – Don’t forget to look at the fine print. Make sure you read your offer document carefully. Don’t make assumptions when it comes to banks. Do your research thoroughly before you get into debt.

How to clear your personal loan

Do’s – Make sure you have steady income and spending power before you take the plunge into debt. Pay your EMIs on time. The EMIs will mostly be deducted from your bank account on a particular date, so make sure your account has sufficient funds. If you are paying by cheque, take care to drop it off ahead of time so that the payment clears before the due date lapses. Some banks also allow you to make cash payments at the branch which may be time consuming but works if you’re running out of time. In the event you are facing strains of paying it back and find yourself financially incapable, communicate with your bank and try to negotiate a deal with them.

Don’ts - Don’t play with fire when you don’t have the water to put it out. Don’t get into personal loan debt when your current expenditure doesn’t have room for a new EMI. Don’t miss a payment or a due date. This will hurt your credit score. Don’t disappear off the radar thinking the banks won’t find you either. Your name will be black-marked in the credit world and your future creditability will be ruined.

                   Coming to the bottom line, be smart and cautious when you get into debt. When you don’t know what you’re getting into, the best thing to do is educate yourself on the topic. If you decide to take a personal loan in Singapore, compare different offers from banks on BankBazaar.sg to get a comprehensive picture of what’s available and then you can make an informed decision and apply for the loan of your choice.