6 Things to Keep in Mind when Getting a Loan

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Many people resort to taking loans to raise funds for their various financial needs. When financial issues arise and one is short on money, they will choose to borrow from their friends, relatives, the banks or from licensed money lenders. For some, they might not be able to get the full amount they need from their friends or family. This is one reason why it has become common for many to approach lending institutions for a loan.

When one is getting a loan from a licensed money lender, there are a few key points to take note of. This ensures that the borrower gets the right loan amount and the best repayment terms. According to Money Kinetics’ Guide to Licensed Money Lenders in Singapore, there are six important points to keep in mind when getting a loan.

Some of the points that the borrower should consider are given below:

1. Flexibility:

Every borrower prefers to have a lender who is willing to be flexible with the terms and conditions of the loan. In most countries, the banks tend to be more rigid with their terms of lending than the licensed money lenders. Banks tend to have fixed policies and regulations, which usually cannot be compromised. A borrower who approaches a bank for a loan will be required to stick to the laid down terms without much room for negotiation. However, a licensed money lender will be open to discuss the most convenient repayment plan for both the lender and the borrower. This point is important because the flexibility that money lenders give will reduce the chances of defaulting, and enable the borrower to repay the loan more smoothly.

2. Documentation required:

The absence of the documents required when one is applying for a loan can result in the loan application being declined. Banks usually require a large number of documents to be submitted by the applicant. Some of these documents may not be readily available, hence resulting in a delay in the loan approval. Licensed moneylenders do not require as many documents as banks. This makes it much easier for borrowers to access loan facilities from the licensed moneylenders. This is a big advantage, especially where the borrower requires cash urgently.

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3. Credit Score:

Having a good credit score is every borrower’s desire. However, there are times when unexpected situations arise which cause a borrower to default on his or her repayments, resulting in a bad credit score. Banks usually look through an applicant’s credit score before making a final decision on whether to approve the loan or not. However, licensed moneylenders may not give a lender’s credit score priority when choosing to approve the loan. This means that those borrowers with bad credit scores will be eligible to get credit from some licensed moneylenders.

4. Approval period:

Many times, when borrowers apply for a loan, it is because they need the cash urgently. Therefore, the period of time taken to approve the loan is an important factor. Banks usually have several steps and processes before they finally get to the point of approving the loan. This is usually a major inconvenience for those who need the funds quickly. Licensed money lenders have fewer steps and procedures in approving the loan. It takes a much shorter time to get the loan approved, sometimes as short as a few hours. This is very important for those who apply for emergency loans.

5. Interest rates:

Ask anyone who is taking a loan, and they would say they prefer the lowest interest rates on their loans. However, licensed moneylenders may charge slightly higher rates of interest than banks. This is because they are willing to lend cash to borrowers who have a bad credit rating, and this means that the risk is higher. They also provide unsecured loans meaning that no collateral is needed. To compensate for this additional risk, some licensed money lenders tend to charge slightly higher interest rates so that they are covered in cases of default. Banks usually do thorough credit checks before approving any loans. They tend to charge slightly lower rates of interest because the element of risk is lower.

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6. Amount loaned:

In general, there’s a wide variety of loans available, many options for borrowers to choose from. Some are personal loans which can be used for any purpose, and others are house or car loans which are restricted to certain to the specific use mentioned. Personal loans tend to be smaller amounts, and these are the loans that are given out by most licensed moneylenders in Singapore. Banks tend to loan out larger amounts that are used for bigger purposes and also run for longer terms. A borrower is not likely to get a house loan from a licensed money lender. Therefore, a borrower should endeavor to approach the right type of lender, depending on the amount and the purpose of the loan required.

The above points are useful in helping the borrower to make the right decision when taking a loan, either from the bank or from the licensed money lenders.