Should You Borrow Money From The Bank Or Licensed Money Lenders?

Believe it or not, the bank often lends its money to people who are stable enough that they would not need to borrow the money anymore. This is why some Singaporeans turn to alternative ways of acquiring money including Licensed Money Lenders. Now, before you borrow money from any of these options, you must know their differences first.

BANKS

Loaning money from the bank guarantees that there would be future repayment of the principal amount and its interest. A loan can either be specific or open-ended credit up to a certain ceiling amount.

Characteristics:

1. Larger Loans – Banks are ideal for larger loans such as renovating your home, starting a business, or buying a car.

2. Credit Assessment – A good credit score with a low debt to credit ratio is a must to qualify for a loan. And, if you want to pay a low interest rate, you need to be vigilant about your credit score.

LICENSED MONEY LENDERS

Licensed Money Lenders are businesses that are regulated by the Singapore’s Law. Unlike the loan sharks that lend with high interest rates, licensed money lenders’ fees are controlled by the parameters of the Law, which means you can expect to have a fair deal. Some of the known money lenders in Singapore are Max Credit, CashMax Credit and Quickloan Pte Ltd.

Characteristics:

1. Smaller Loans – Licensed money lenders are the ideal option for smaller loans such as paying utility bills, getting your laptop fixed, or repairing your car (even amounting to S$1,500).

2. Credit Assessment – Unlike the banks, licensed money lenders give more leeway in the credit score. This is because they lend a significantly smaller amount. So, if you have a bad credit and you cannot get a personal loan, licensed money lenders are there for you.

3. Transaction Speed – Licensed money lenders approve the borrower’s application within the day itself!

4. Higher Interest Rate – Since they carry more risk for granting loan to people with poor credit rating, they usually charge a higher interest rate and late fees

Image Credits: Taber Andrew Bain via Flickr

Image Credits: Taber Andrew Bain via Flickr

Although the license money lenders give more freedom in the credit score, they will reject your application if you have a large sum credit card debt or if you have an outstanding loan from another money lender.

Sources: Investopedia and Sumo Credit Pte Ltd

Read More...

How A Couple Paid S$36K Worth of Debt In Just 6 Months

A couple from America has consciously decided to look into their expenses and pay off their US$27, 000 (S$36, 474) worth of debt in just 6 months.

Jackie or better known in social media as The Paleo Mama and her husband sat down to discuss their finances since they were supposed to buy a house. If they are going to pursue in buying the house, they will get themselves wrapped up even more in debt.

They found out that they had US$50, 000 (S$67, 546) worth of debt due to accumulated education/student loan and the worth of their new car. They did not realize that they were supposed to pay student loan quickly as its interest and value pile up in time. So, they were determined to turn things around.

Here are the 6 things they did to cut down their expenses and earn more income:

1. MONEY MANAGEMENT

First, it is important to track where your money is going through the last month’s bank statements and receipts. The couple noticed that they are spending too much on groceries and eating out.

Image Credits: Jason Rogers via Flickr

Image Credits: Jason Rogers via Flickr

With these things in mind, they devised a plan to categorize each expense and allocate specific amount of money on to it.

2. CUT DOWN MOBILE PHONE PLANS

They switched to prepaid phones and got rid of their iPhones. This brought them from US$160 cost of mobile phone plan to US$60 cost of prepaid phone per month.

3. CUT DOWN THE CABLE TV AND ELECTRICITY

They started using Netfilx and Hulu to stream shows (the first month is Free) rather than subscribing to cable TV. Also, they managed their electricity by turning off the lights and controlling the temperature of the air conditioner.

4. SELLING AND USING ESSENTIAL OILS

In order to earn more money on the side, Jackie learned how to make essential oils and sell them online. They also stopped buying over-the-counter medication and cleaning products and started using essential oils instead.

5. SELL THEIR STUFF

They sold their old car (now they have one family car), furniture, clothes, toys, and so on. Furthermore, they only buy used clothes on Goodwill or the local thrift stores. This helped them earn a lot of money.

6. BE HONEST ABOUT THE SITUATION

They called various companies to tell them that they can’t afford the various plans anymore. The customer services helped them to reduce the payments by more than 75%.

As you can see, Jackie and her husband were able to pay off over half of their debt by budgeting wisely and selling their stuff. Fortunately, you can also use these strategies yourself!

Read More...

4 Things to Consider Before Applying For An Educational Loan

Tertiary Education and Graduate Studies can be too costly especially to people who live by one cost at a time without any savings plan what so ever. On the other hand, just because a bank tells you that you are qualified and approved for an education loan does not mean taking it is a good idea.

Here are 4 Things to Consider Before Applying For An Educational Loan:

1. EDUCATE YOURSELF

Before applying for any education loan, it is tantamount to understand what the student’s course aspects are such as the eligibility criteria and the loans needed to complete the whole course.

Educate yourself about the loan’s dimensions such as repayment, pre-payment fees, and cancellations.

2. SWIM THROUGH THE WHOLE POOL

Study all the possible options by swimming through the whole pool. Some banks offer the best interest rate while others offer the best processing fee. So, to save you money, enquire about all the loan schemes available in the market.

3. KNOW THE TOTAL COST

Be aware of the interest, pre-payment fees, additional processing fees, repayment options, and cancellation fees. It is always better to get rid of the debts as soon as possible but some banks may impose additional charges for pre-closure of the loan. So, ask yourself if is worth it.

Usually loan applicants concentrate only on the principal and interest to reach repayment amount. By doing so, you will have to pay extra charges that the bank authorities have not clarified. This is why it is vital to ask after educating yourself.

4. CHEAPER ALTERNATIVES TO REACH THE GOAL

Explore if there are cheaper ways to reach the same goal. Other universities offer online diploma courses that are cheaper than if you take it up on the university’s premises.

Image Credits: Will Folsom via Flickr

Image Credits: Will Folsom via Flickr

But, if you have done the math and your financial account cannot cover the expenses just yet…fret no more. Be resourceful instead. Volunteer works, internships, and a Polytechnic diploma may help you acquire the necessary skills without going back to undergraduate school.

By obtaining a diploma in the same field you will take in undergraduate school may help you get other subjects exempted. I have a couple of classmates who are exempted for a couple of semesters or even a year just because of the subjects and electives they have taken up in Polytechnic. Hence, it will not only save you time but it will also save you money.

Read More...

Undestanding the Total Debt Servicing Ratio (TDSR) in Singapore

TDSR Singapore

If you are planning to buy your first property, you will be made to get accustomed to a term call “TDSR” or Total Debt Servicing Ratio (besides SIBOR, LTV and the likes) introduced on 28 June 2013. Not surprisingly, 1 in 3 home buyers are not familiar with how the TDSR works.

TDSR is one of the 8 rounds of property cooling measures enforced the the Monetary Authority of Singapore (MAS) since the financial meltdown of sub-prime crisis in 2008.

It has been more than a year since it was implemented and has since impacted the property market in Singapore, dampening demands and preventing housing price to go out of control.

What is TDSR?

To ensure financial prudence in borrowers, a framework is set to ensure that a borrower cannot has a outstanding debt repayments more than 60% of his gross income. This not only prevent home buyers of excessive gearing, it also ensure that financial institutions (FIs) are able to manage their credit risk appropriately.

Outstanding debt repayments encompasses ALL your financial liabilities which includes and are not limited to: student loan, credit card debt, car loan, personal loan, etc.

When your overall debts cannot exceed 60% of your gross income, it also means that if you are earning a gross income of $3,000 a month, your total debts cannot exceed $1,800 (60% of $3,000). That is to say if your existing outstanding debts amount to $1,000, your mortgage repayment should not exceed $800 – calculated with the higher of actual interest rate or 3.5% (for residential properties) or 4.5% (for non-residential properties). On top of that, there is a Mortgage Servicing Ratio (MSR) of 30% that stipulates that the amount that goes to service your mortgage should not exceed 30% of your income. In this case, your maximum allowable repayment is $900 (30% of $3,000).

You can use the TDSR calculator from UOB to calculate your home loan.

* If you are a variable income earners (e.g commissions, bonus), there is a 30% haircut which means only 70% of the income is used in the calculation of TDSR.

Why is there a need for TDSR?

With low interest rate and growing investment appetite, coupled with excess capital liquidity – it could be an eerie reminiscent of the housing bubble in 2006 which eventually goes burst and causes mayhem. Fortunately, Singapore has various cooling measures which include a limit on the maximum loan tenure, loan-to-value limits and imposing stamp duties such as the Additional Buyer Stamp Duty (ABSD) and Sller Stamp Duty (SSD) and has managed to curb inflating property prices. There is also a stricter liquidity rule which requires bank to hold quality liquid assets such as cash and government bonds to withstand an intense 30-days shock witnessed in the 2008 crisis.

What happens after several rounds of cooling measures?

As one would have expected, property prices has been heading south and dampening demands has led to many unsold units. The URA’s Private Residential Property Price Index has fallen for the fifth consecutive quarters in the latest URA’s flash estimate published in 2 January 2015. For the entire year of 2014, prices has fallen by 4%. There are anecdotal evidence that if prices fall by 10%, Singaporeans have the liquidity and means to snap up the units!

Housing loans has just increased by 6 per cent in September 2014 from a year ago, a stark contrast of the peak of 23 per cent in August 2010.

The property market is still lackluster and Minister Khaw Boon Wan seems adamant to keep the property cooling measures, home buyers may find themselves landing a good deal with 50,000 new units to be completed over the next 2 years.

 

 

Read More...