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.