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Unsecured Loan Rules and Comparison. Learn how it affects you.

Unsecured Loans Rules and Comparison: How does it affect you

Understanding Unsecured Loans

With the rapidly changing financial industry and laws imposed on it, Monetary Authority of Singapore (MAS) stepped in early this year to aid borrowers landing in excessive unsecured debts. A new rule of capping the unsecured loans limit was imposed.

The new rule prevents borrowers from further getting any unsecured loans credit from financial institutions should the borrower have unsecured debts that exceed six times his or her monthly income, financial institutions will not be allowed to provide any increase in credit limit or additional credit that will cause a borrower’s credit limit to exceed 12 times their monthly income.

The rule comes in a move to reduce the escalating debt problems in Singapore and led to a slew of changes in how unsecured loans work.

An Infographic by MAS on new measure to help individuals manage unsecured debt

An Infographic by MAS on new measure to help individuals manage unsecured debt

Secured Loans vs Unsecured Loans. What are they?

Secured Loans

Loans are secured if and only when borrowers pledge their assets to the lender as a form of collateral for the loan. Should their loan fall through when repayments are not met, the lender has the authority to sell the assets to recover the money due. If the money recovered is not enough, borrowers are liable to make up the shortfall.

Unsecured Loans

Unlike secured loans, for unsecured loan borrowers do not provide or pledge any form of assets to the lender as collateral. Therefore, interest rates for such loans tend to be higher as financial institutions or lending companies take on more risk.

Past financial records, monthly salaries, unsecured loans debt are taken into consideration whenever an unsecured loan is issued. Personal loans, credit cards are a form of unsecured loans.

What next? Afterthoughts of loans

Regardless of loan types, do be clear on the loan you are getting. The goal is to opt for a loan that best fits your needs and minimising the interest cost whenever possible. Managing your financial wealth is of utmost importance as you would not want to end in a spiralling debt cycle.

Always be clear on your loans, ask the loan officer during your session. When in doubt, do your due research or seek another financial institution.

Manage Your Festive Cash with Credit Card and Payday Loans

The period from December to February always passes by in a flash, starting with Christmas celebration, followed by New Year and finally, our personal favourite, Chinese New Year! All these activities requires huge cash commitment from us. A Straits Times report states Singaporeans intend to spend an average of $2,503 during the Chinese New Year period.

Coupled that with the other celebrations, this amount can easily go up to three or four thousands. So, how can we manage or even make the most out of these thousands of dollars?

Cash back or Miles Credit Cards

There are many credit cards in the market with various benefits, but you will have to decide which one works best for you. Here, we recommend just looking at two types — cashback or miles.

This is how Cashback credit cards typically work — you get a percentage cash back at the end of the month after the bank has tabulated your spendings, usually with a cap on the cash back.

Different cards give cash back for different type of purchases:

Citi Cashback Card works best for food and transportation with up to 20% cashback on select merchants.

DBS Live Fresh Card works best if you love shopping online with up to 5% on online purchase

There are many others in the market, so compare them and select the best ones for your needs in order to get the most out of the high spending during the festive periods.

Miles cards are best for those who loves travelling as these cards gives you X miles for $Y purchase.

Unlike cash back cards, miles cards do not have a limit so you can rake in tons of miles during this period.

Credit Cards and Interest Rates

However, with credit cards, you will also need to take note of interest rates. Especially since there will be so much on your to-do list that you might forget about your credit bills.

This can take a huge hit on your finances since the rolling interest rates can be as much as 2% per month or 24% per annum.

Payday Loans Instead of Credit Cards For Quick Turnaround

The only issue with credit cards is that not everyone can afford them, especially if you have a history of bad credit ratings.

That’s when payday loan can help. Example, when you are waiting for your year-end bonus to arrive, and you require a small cash top-up to prepare for the celebrations.

While payday loan also has high interest rates, they can be easily managed as long as you work within your means and figure a plan to repay the amount monthly.

So, how have you been managing your spending during this period? Let us know if you have other great ideas!

Learn about personal loan and how to leverage on its advantages.

How to Use Personal Loan to Your Advantage?

Personal loan is readily available to anyone via multiple financial institutions such as banks and moneylenders. With such flexibility, it also meant that individuals now have the capability to spend first and think about the consequences later. But as the cliché saying goes, with “great power, comes great responsibility”. So here’s how to borrow responsibly so that you don’t regret your decision later.

Always Borrow for Needs, Never for Wants

There are a few reasons why people would end up over borrowing on personal loan and it almost always have to do with materials wants rather than need.

It was recently reported in the news that a couple landed themselves in more than $100,000 worth of debt with personal loan after their wedding.

While marriage is a once-in-a-lifetime affair and many dream of having a dream wedding, planning one without the consideration of cost will guarantee to kick-off your marriage with a rocky start.

Here’s what Mr Lee, 35, told The New Paper,

“We have had more fights since our wedding than in the six years that we were dating.

Most times, it was over money… and we’d end up blaming each other for the situation.”

So, how we can make sure we don’t land ourselves in such a situation?

Plan Your Personal Loan Carefully

Reasons why people tend to over borrow is because they plan with the mind-set of achieving a material want. We often tend to convince ourselves that we will be able to take care of the debt later on when all is over, but it has been proven over and over again that it’s not the case.

Once you have land yourself in debt, you will find it harder to keep up with your current lifestyle with a smaller amount of budget every month. And more often than not, you will borrow to fulfil that particular lifestyle, landing yourself in even more debt.

Such as the case of a couple who landed themselves in debt after their marriage and proceed on to buy a five room flat and had a child. They got so much debt that it threatened their marriage.

So instead, when planning for major life events, such as buying a flat or having a child, always try to plan your finances beforehand. Sit down with your partner and separate items between wants and need. (e.g. do you really need to hold your banquet at a hotel instead of a restaurant?)

By carefully listing out the items, you can then successfully plan for what is essential, and if necessary, take on a personal loan to achieve what is needed.

If you are only asking for a small loan, your friends and relative might be able to help

Instead of going to financial institution, which charges for interest rates, you may try approaching your family or friends for a personal loan.

Most people are wary about lending to their family because they are afraid of the awkwardness when it’s time to ask for their money back, and also the possibility that they won’t.

However, if you can work out a weekly or monthly return plan, they might just be willing to do so.

So, our advice is to never take on a personal loan for a material want because you tend to overestimate your repayment ability. And even when you need one for a need, make sure you have a plan on how you wish to make the repayment.

Credit Card Payment on Credit

6 Tips to help you Manage Debts & Finances

According to an article published on The Straits Times on 1 August 2013, Singaporeans are loading up more and more on debts and many are taking up multiple loans.

This is also made evident in the Yearbook of Statistics Singapore 2013; it shows that the number of pledges received at pawnshops and the numbers of loans have shot up significantly between the years 2011-2013. Obviously, this has shown that Singaporeans may have difficulty in managing debts and require help to manage debts.

As it’s becoming easier to apply for credit options such as credit cards, credit lines and loans, the number of young adults running into debts are increasing as well.

6 Tips to Manage Debts Better

So how should you ensure that you don’t end up being buried under a mountain of debt?

Here is a simple video by Institute of Financial Literarcy that shows us how you can learn to manage debts, and some take-away pointers from us at Empire Global SG.

1.) Don’t take up loans that you Cannot Afford

Before you get too excited about taking up a loan for your new Porsche or Ferrari, please bear this in mind – higher debts equals higher repayment terms which leads to lesser ready cash for your other expenses.

As a general rule of thumb, your total monthly servicable should not exceed 35% of your gross income. This is to ensure that you will be able to repay the loan with ease and not create a pit-hole for your future.

2.) Be interested in interest rates

Is it true that you should take a package with a lower interest rate? If you agree with that statement, you are probably paying more interest than necessary.

Effective interest rates reflect the true cost of taking up the loan as it takes into consideration the frequency and amount of the repayments.

This could means that although you are servicing a smaller amount of monthly repayments but you are actually paying more than one who pays a larger monthly amount.

Advertised interest rates on the other hand, are typically nominal rates, which have not taken the amount of loan and period of repayment into consideration.

Therefore, next time when you are offer an attractive loan rate, do not be too hasty to take up yet.

Ask the bank for the effective interest rates as well; calculate the exact amount that you need to repay after taking into consideration the amount of loan and the frequency of repayments before you decide whether to take up the loan.

Hence, if you are keen to manage debts, make sure you have adequate knowledge in the different interest rates and be very clear of what you are landing yourself into!

3.) Read Everything before signing anything

Unless you are a superstar who needs to autograph for 5000 fans within 2 hours, take time to study the contract carefully. Understand your rights and obligations before you sign.

If in doubt, question every term and jargon that you don’t understand. Know that you are the customer and have the right to know every detail thoroughly from the service providers.

Once you have signed on the contract, you are legally bound to the terms and conditions stated.

To manage debts well, do not make the common mistake that most people do when taking up a loan deal. Not reading the fine print!

4.) Don’t Borrow to Pay a Debt. Ever.

We cannot stress on this point any further – Never Ever Borrow to Pay a Debt. Do this in order to manage debts better!

If you need to borrow to pay for a debt, it shows that you are already having problems to manage debts.

Stop before you dig yourself into another hole! Look at some of the Stupidest Ways Singaporeans Deal With Debts and don’t follow in their footsteps.

If you think you can manage debts yourself, by doing so, you are totally wrong. Wouldn’t it be worse to have one more debtor coming after you for repayment?

Here are some steps from MoneySense to help you understand how you can become debt-free as soon as possible.

Credit Card Payment on Credit

Credit Card Payment on Credit Card Joke

 

5.) Stay on track with the big picture

Are you getting confused over the different debts that you have? Are you unsure of what debts you are paying for every month and when are the repayments going to end?

To manage debts well, come up with a spreadsheet to have a better overview of the outstanding debts. It will also help you to prioritise which debt you should repay first.

As a general rule, you should always pay off the debt with the highest interest rates such as credit card debts.

This helpful infographic will show you 5 tips to save yourself from the credit card debts.

5 Ways Dig Yourself Out of Credit Card Debt Info graphic. Manage Debts better!

5 Ways Dig Yourself Out of Credit Card Debt Info graphic. Manage Debts better!

 

6.) Consolidate and save

Are you suffocating from the different debts that you need to repay every month? Perhaps it’s time for you to speak to your lender on the repayment terms.

Trust us; the situation will just get worse if you try to avoid payments. Have a good control over your financial situation; ensure that you do not have too many late repayments to prevent incurring more interest.

Your lender may be able to help you to restructure the loan. After all, all lenders would want their money back.

Don’t try to avoid your lender just because you are having problems with the repayments. Be open to them. Ask for help.

Conclusion

At the end of the day, the best way to prevent you from getting unhealthy with debts is to be able to manage  debts well. Understanding your needs and wants, be able to differentiate between the two.

Focus on your priorities in life. Understand your needs and reduce on your wants, you will naturally be able to reduce your debts.

Before taking up a loan or swiping your credit cards for your next purchases. You should look at your monthly income, expenses and budget them accordingly.

Do you have the capability to support that new purchase? Ask yourself the questions before committing.

Spending more than you Earn

Spending more than you Earn

 

Therefore, as much as possible, we should try our best to manage debts before it gone badly and enjoy our lives within our own means.

If you can only remember one point, just remember this – Spend within your limits and plan wisely. Speak to the friendly loan officers at Empire Global SG for advice and assistance if you need further information.