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Responsible Lending

Things to Think about before taking out a loan

Taking out a loan can help you meet your long-term goals for a home or education. However, excessive borrowing may lead to financial trouble. You should consider twice before borrowing or taking out a loan.

Make sure you have the means to meet your monthly loan repayment instalments

Carefully consider your other monthly financial commitment. Make a list of both fixed (e.g. housing loans, car loans, renovation loans) and variable (e.g. food, clothing, children’s education,electrical bills ) expenditures.

Make sure that you are still comfortably within your disposable income level after adding the monthly instalment to all your financial obligations.

Borrow only what you really need, nothing more

Taking on a loan is a heavy responsibility. Do not borrow for unnecessary reasons.
Borrow because you need to and have carefully considered your reasons for doing so.
Before using your credit card, taking a loan to buy a car or buying a durable item on credit, ask yourself the following

  • Do you really need it? Or is it something that you merely want?
  • Must you have it today?
  • What will happen if you do not buy it today?
  • How are you able to manage with it?

If you have decided that it is something important and you really need it, asses if you need to borrow or take out a loan to purchase it. You will be better off saving for it and pay in full cash to save on the interest charges if you take out a loan.

Pay your monthly instalments promptly on time to avoid late charges

Always keep track of your instalment due dates or consider applying for hassle-free GIRO payments.

Try to keep your monthly long term debt commitments below 35% of you gross monthly income.

Avoid multiple sources of credit

Avoid multiple sources of credit loan, personal loan or payday loan should that it will be easier for you to keep track of your repayments when you have fewer credit facilities.
If you are unable to meet the payment deadlines and due dates, let your financial institution know and explain the reason to them.

Ensure that you clearly understand the terms and conditions of your loan

When you borrow money, you have a right and the responsibility to know the loan’s terms and conditions.
We strongly advise that you read and fully understand the terms and conditions of your loan before signing the loan agreements. Make sure the information you have provided is accurate and confirm that the loan and instalment amounts are what you understand it to be. Ask questions like:

  • what is the effect interest rate and advertised rates?
  • What are all the fees involved?
  • How much will you paid in interest when the loan is paid off?
  • Are you able to pay off the loan without penalty charge?

What Issues Should I Consider when borrowing?

If you have decided that it is something you really need, assess if you need to borrow to purchase it. You will be better off saving for it and paying in cash to save on interest charges.
Alternatively, take a smaller loan so that you do not overstretch yourself financially. Look at the total borrowing costs including the total interest payable before you borrow. Only borrow if you are sure that you can afford the loan payments.

© Alpha 8 Credit Singapore