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Which is the Right Loan?

When it comes to obtaining a loan, there are plenty of choices – from credit cards, personal loans, to tax loans and mortgages. Here are the options that you can choose from, depending on your spending habits/needs.

CREDIT CARDS – most flexible and convenient way of paying purchases. Spending limit is provided according to your credit score or credit worthiness. Payment options are flexible too, but comes with high interest rates.

Consolidating Credit Card Debt – For multiple credit card debts, you can consolidate all debts into one      card. Once done with consolidation, cancel some of your credit cards, this way, you will be able to manage        your spending. You will be able to focus on your new consolidated payments, but make sure not to lose              track of your spending.

> Cancel some of your credit cards. After you’ve transferred all your card debts into one account, it might                be wise to cancel some of your paid-off cards. Having fewer lines of credit available may help you manage your spending patterns.

> Stay on track with new payments. While the interest on your consolidated loans might be lower, any        new purchases you make with your card will be charged at the normal credit card interest rate. Keep up           with your payments to avoid penalty fees.

PERSONAL LOANS – This provides access to funds for various things such as family emergencies, buying home/car, or for consolidating other debts. This type of loan requires a regular installment pay within a set period of time.

Watch out for:

> Handling fees charged for processing a loan.

> Early repayment charge if you pay off a loan earlier than the agreed term.

> Late repayment charge if your monthly repayment is overdue.

> Cancellation fee if you change your mind and cancel the loan after you’ve signed the contract.


OVERDRAFT - If you withdraw more funds than you have in your account (for example, writing a cheque with insufficient funds in your current account), your account is considered overdrawn. You may be charged an overdraft fee, and also have to pay interest for the amount overdrawn.

Watch out for:

> Annual fees for overdraft facilities.

> Overdraft handling charges if your account becomes overdrawn.

> Interest is calculated daily on most overdraft facilities.

> Extra fees for overdrafts beyond your agreed credit limit.


MORTGAGE LOANS - Mortgages come with fixed or variable interest rates. A fixed-rate mortgage means your payments will be the same for the life of the loan. If you have a variable-rate mortgage, the rate you pay rises and falls in line with market interest rates. You can use a mortgage repayment calculator to work out how much you can afford to borrow. When choosing a financial institution for a mortgage, consider the following:

> Length of approval process

> Loan period

> Repayment terms

> Fixed vs. floating interest rates

> Early repayment penalties

> Handling fees, cancellation fees and valuation fees.


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Loan Basics

Loans can be effective financial tools to help you achieve your goals, but they must be used wisely. If you’re thinking about borrowing money, consider your options carefully.

Secured loans

Secured loan is when you offer something as security in return for the money you borrow as collateral – such as property, your deposits or other assets. This offers lower interest rates than unsecured loans. However, banks or other lenders can claim your asset if you default on your loan repayments

Guarantees and sureties

If lender is unsure about your ability to repay the loan, they ask for a surety/guarantee, a legally binding agreement that a third-party (usually a person or a company) accepts responsibility for the loan if not paid. This third party is known as a surety/guarantor. If the surety fails to meet the obligation, the lender has the right to take legal action against the surety.

Unsecured loans

With an unsecured loan, you borrow money without collateral. Interest rates for unsecured loans are higher than secured loans because you are not offering any security to the lender. Credit score is taken into consideration when applying for unsecured loan, and your score suffers if you have trouble with repayments.

Fixed vs. floating interest-rate loans

Floating-rate loan – A loan with an interest rate that rises and falls – or floats – with market interest rates. The interest rates for most floating-rate loans change in accordance with the prime rate.

Fixed-rate loan – A loan with interest that remains fixed for the loan’s entire term, regardless of market interest rate fluctuations. Some people prefer this type of loan because their payments will remain the same throughout the duration.

Interest rates of loan products

Interest is usually the main cost of taking out a loan. Depending on the types of loans, there are different commonly used basis on which interest is calculated in the market, monthly flat rate or annual rate for personal instalment loans and daily or monthly compound rate for credit card outstanding balance.

Repayment terms

Set a period of time to repay the money, typically from 6-48 months. If you choose a longer repayment period, you will reduce the size of the monthly payment, but increase the total amount of interest payment. Your repayment period can affect the interest rate of the loan.

Documents for loan application:

Banks/lenders will require documents to support loan application.

>Permanent Resident Identity Card

>Proof of income – latest payroll slip, bank statement or passbook listing your name, account and salary.

>Proof of residential address, such as a utility bill or bank statement.


Fees and charges

Lenders are required by law to publish their fees. Be aware of common fees and charges when borrowing:

>Processing fee charged by banks or financial institutions for a loan

>Early repayment charge: The bank charges extra fee if loan is paid earlier than the agreed term.

>Late repayment charge: If monthly repayment is overdue.

>Cancellation fee: Cancelled loan after signing the contract.

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Loans – Responsible Borrowing

Borrowing may be a convenient way to purchase something that you would otherwise take a long time to save up for. In the case of buying a home, for example, a mortgage allows you to live in your home while you pay it off.

Whether you’re planning a big purchase like buying a car, getting married or need extra cash to deal with family emergencies or pay for education, sometimes borrowing may not be the best option for you.


Can you afford to borrow?


Before you decide to borrow money, it’s worth taking the time to ask yourself a couple of key questions below, and to make sure you can afford new debt repayments on top of your current expenses or commitments.


– What are you borrowing the money for? Make sure it is IMPORTANT!

– Is borrowing your best option? There may be other ways to achieve your goals, TAKE ON EXTRA JOBS!

– How much should you borrow? Borrow what you can ONLY AFFORD TO PAY!

– What is the cost of borrowing money?  Check the BEST INTEREST RATE!

Before borrowing, consider the following:

. Do a budget to work out your monthly spending, savings and loans.

– Allow to have emergency funds in case you lose your job, illness, or in any emergencies.

– Borrow what you need and what you can comfortably repay, regardless if you are qualified for a higher loan amount.

– Make your payments on time to avoid penalties and pay off your debt quickly to minimize total interest payments.

– Avoid unnecessary multiple sources of credit to keep an easy track of repayments.

Situations when you should avoid borrowing:

> Problem paying everyday expenses. If you have trouble paying for daily necessities, borrowing money could put you into debt.

> Covering optional spending. If you can put off an optional purchase until you’ve saved up the money, you will avoid interest charges altogether.

> Borrowing because to settle other debts. If you’re already deep in debt, going further into debt is probably not the best solution.

Risks of borrowing too much:

Borrowing too much can leave you struggling financially as you plunge deeper into debt. Be careful about borrowing too much.


> It draws money from other important needs. If you borrow money, you have to pay interest. Money that goes towards interest payments can’t be used for other purposes, such as paying down your mortgage or meeting other obligations.

> Your credit score can suffer if you can’t pay your bills. Falling behind on your payments means it will be increasingly difficult to borrow more money for future needs. Find out more about your credit score and how it affects your borrowing.

> It can lead to higher interest payments. Lenders may charge higher interest rates on subsequent loan applications if you are already carrying a large amount of debt.

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Help with Loans


If you want to borrow money and pay back an amount every month, a personal loan is one option.


What is a personal loan?

Personal loans are loans that a bank or other lender makes that are not secured against any asset such as your property. They’re also known as unsecured loans.


Personal Loans – The Pros

> Able to borrow more than with a credit card

> Loan repayments may be fixed amounts. That means your repayment amount is going to be the same every month and it’s easier to budget.

> The interest rate you pay on a personal loan is also usually fixed (but not always).

> You can choose how long you’d like to take to repay the loan. Remember the length of a loan will affect the amount you are charged in interest.

> You can consolidate several debts into one personal loan, potentially reducing your monthly repayment costs. But be careful, as this may mean extending the length of the loan and so paying more overall.


You can make over-payments or pay off a personal loan in full before the end of your agreement without penalty.


Personal Loans – The Cons

x Personal loans have higher rates of interest than some other forms of borrowing, particularly if you want to borrow a smaller amount, such as £1,000.

x Because the interest rate may reduce the more you borrow, you may be tempted to take out a bigger loan than you need.

x Older loans (taken out before 1st February 2011) normally have an early repayment charge if you want to pay off your loan early or overpay.


Personal loan cooling-off period:

There is a 14-day cooling-off period from either the date the loan agreement is signed or when you receive a copy of the agreement, whichever is later. If you cancel, you have up to 30 days to repay the capital and interest.


What to watch out for in a personal loan:

Get the interest rate advertised with the loan, which is known as the representative APR (or annual percentage rate). This is the rate that you will see on posters or banks’ websites, but not everyone will qualify for it. In fact, loan providers only have to offer this rate to just over half (51%) of borrowers they lend to. If your credit rating is less than perfect, you may be accepted for a loan but charged a much higher rate of interest than the representative APR. Your application for a personal loan will not necessarily be accepted.


Secured Personal Loans

If you own your own home, you may be tempted to consider a secured loan.

However, this is a riskier option as your home is secured against the money you borrow.

This means that if you can’t repay the loan, the lender could force you to sell your home to pay off what you owe.

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