Taking on a loan is never easy, no matter the type. Whether it’s a personal loan to spread out a big-ticket expense or a business loan to give your budding company some much-needed cash, a lot of careful consideration is needed before you sign on the dotted line. Something that you absolutely need to factor into your decision would be the loan tenure.
Choosing the right loan tenure is important and it’s not as simple as picking either the shortest or longest one available. There’s a reason why both banks and local money lenders offer a range of options when it comes to repaying your loan. These six essential things to consider will help you greatly in making your final decision.
1. Know your existing liabilities
You must consider your current liabilities when choosing your loan tenure. This ensures that your loan repayment amount and schedule are things that you can handle comfortably.
Home and car loan repayments, credit card payments, medical costs, insurance premium payments, your children’s tuition fees, and household bills are some common financial liabilities people have.
While everyone’s situation is unique and different, you’ll need to be truthful with yourself: what are all your monetary obligations and liabilities?
2. Understand your monthly budget
Make an effort to know what your monthly budget is. To do that, list down all your monthly commitments and fixed costs, including household bills, groceries, insurance premiums, and petrol.
Total up the sum of your monthly commitments and fixed costs and compare it against your monthly salary. How much disposable cash do you have after deducting these fixed costs and your mandatory CPF contributions? What’s a monthly loan repayment amount you can truly afford?
When choosing your loan tenure for personal loans, you must work with what you can feasibly manage without being overstretched financially. It is not a good idea to shoot for a short loan tenure just because you want to minimise the interest charges accrued.
3. Consider the loan amount you need
This point is often overlooked as people seeking personal loans to tide over urgent financial woes typically pay more attention to things like interest rates, fast loan approvals, and fast cash disbursement.
Before you even think about your loan tenure and monthly loan repayment amount, spend some time to figure out exactly how much you need to borrow. As always, do not borrow more than necessary — only borrow what you need to tide over your emergency cash needs. Never ever borrow to fund your wants!
Find out more about personal loans here.
4. Know how much interest charges there are
Licensed money lenders in Singapore are allowed to charge interest rates of up to 4% per month. Before you settle on a personal loan that best suits your needs, definitely do your research and make comparisons:
- Get loan quotes from several licensed money lenders
- Compare the interest charges that each loan quote entails
In general, the longer your loan tenure is, the more interest charges you will have to fork out ultimately. However, it does mean that you’ll have a longer period to pay off the loan.
On that note, you do not want to be stuck with a loan that will take an unreasonable amount of years to pay off. For example, 20 years to pay off a housing loan is reasonable, but for a relatively small personal loan, it’s completely unrealistic and a tenure that no bank nor licensed moneylender will offer.
This is why you must know exactly what you are in for when it comes to picking a personal loan with the right loan tenure for yourself.
5. Use an Equated Monthly Instalment (EMI) calculator
You can also use an Equated Monthly Instalment (EMI) calculator to help you compare loan offers from different licensed money lenders and banks in Singapore.
This is one handy tool you can tap on to help you choose the best personal loans and loan tenure for your needs.
While you’re at it, do play around with changing the loan tenure in the calculator. Thereafter, decide if you’re better off with a lower interest rate loan with a longer loan tenure or a higher interest rate loan with shorter loan tenure to see which option results in the least interest charges overall. Remember to factor in your own monthly and yearly cash flow as well.
6. Assess your future financial prospects
Do you foresee yourself getting a salary increment shortly? Are you due for a large bonus soon? Are you planning to switch jobs for a large raise in the foreseeable future?
If your answer is ‘yes’ to any of the above questions, it could translate to more disposable income. You might be able to get away with a shorter loan tenure that has higher monthly repayment amounts instead of erring on the side of caution and opting for a longer loan tenure with lower monthly repayment amounts.
If you are confident that you can pay off your loan quicker, why not consider 12-month loans too? This gives you one full year to pay down your debt while limiting your interest charges. Interest savings is akin to free cash, agree?
And if you’re looking for a reputable licensed money lender in Singapore to take up a loan from, MM Credit is your best bet. We have been in the moneylending industry since 2013 and all you need to start applying would be to submit a loan application — we’ll get in touch with a customised loan quote at the soonest!
About the Author
As a premier professional lender that is focused on assisting customers with their unique loan needs since 2010, MM Credit regularly dishes out well-crafted content on loans and personal finance.
