Living in a place like Singapore may seem exciting. It may even seem surreal to a lot, given how progressive and beautiful it is. But the reality is, that living in Singapore isn’t cheap. It comes with a hefty price tag. Many will find the cost of living in the Lion City overwhelming and some financial assistance may be needed. Whether it’s paying for education, dealing with medical emergencies, or putting a downpayment on a property, borrowing money may be an inevitable solution.
First-time borrowers may find navigating SG’s loan landscape quite challenging. This article will discuss the most common problems first-time borrowers encounter and how to work around them.
Reasons Why People Borrow Money
Folks borrow money for different reasons. In Singapore, a person may take out a loan from a money lender or a bank for the following reasons:
- Education. School expenses and university fees add up pretty quickly.
- Medical Bills and Emergencies. Unexpected medical emergencies, treatments, and medication can really put a dent in your bank account causing you to look to lenders for relief.
- Property Purchase. Everyone dreams of having a home. Buying real estate in SG will cost you a pretty penny. Folks look to the Housing and Development Board (HDB) for affordable housing loans. They offer reasonable rates that make loan payments easier.
- Business Investment and Launch. Starting a business requires substantial capital to finance initial operating costs, equipment, inventory, and other similar expenses.
- Debt Consolidation. Although this doesn’t involve first-time borrowers, debt consolidation is a legitimate reason Singaporeans take out loans.
5 Most Common Problems First-Time Borrowers and How to Avoid Them
Now that we know why people need financial assistance in SG, let’s look at the typical mistakes first-time borrowers make.
1. Underestimating Loan Costs
One of the biggest mistakes a first-time borrower commits is not understanding the parameters of the loan package they’re taking. Most folks don’t pay attention to important details like interest rates, fees, penalties, and the overall amount to be paid. Or perhaps, some of them overestimate their earning capabilities without a backup plan in place.
Pro-Tip: Perform Your Due Diligence
Do your research. Compare rates, fees, and terms from different financial institutions and lenders. Read the fine print to avoid potential problems.
2. Overborrowing
Another mistake first-time borrowers make is taking out a loan amount above and beyond what’s necessary. Concerning the previous point, some folks borrow more money than they can handle paying monthly which could cause them to borrow more from others.
Pro-Tip: Borrow Only What You Need
Keep in mind a loan isn’t a blank check for spending. Borrow only the amount you absolutely need so you don’t struggle with the repayments.
3. Missing Payments
People miss loan payments for several reasons, but regardless, you should never miss out on your monthly payments. It can damage your credit score and lead to financial struggles.
Pro-Tip: Automate Payments and Build a Good Credit History
If you can, automate your monthly bills—including loan payments. This will prevent missed payments and help you establish a good credit history, making it easier to borrow in the future.
4. Miscalculating Budget
Speaking of missed payments, sometimes life throws things our way that mess up our bank accounts. This makes debt management quite a challenge. For this reason, finance experts highly encourage building a sufficient emergency fund so unexpected expenses don’t derail you.
Pro-Tip: Work on a Feasible Budget and Stick to It
A healthy budget will always take into account the actual income versus existing and potential expenses—including loan payments. Also, consider building an emergency fund if you don’t have one. A good portion of your monthly budget should go toward your emergency funds.
5. Choosing the Wrong Loan
Lastly, first-time borrowers eager to get a loan neglect to consider other options. Many get stuck with bad deals because they failed to perform due diligence.
Pro-Tip: Shop Around for Alternatives
Whether it’s your first time to borrow or not, always shop for options. This allows you to have choices that lead to wiser borrowing decisions.
Wrapping It Up
Loans can be a powerful tool, especially in a place like Singapore. But one should be responsible and give careful thought and planning to their actions before they take out a loan.
It’s important to do your research before you borrow money. Doing this lets you make wiser decisions and helps you become more responsible.
If you’re a first-time borrower and don’t know where to start or you’re struggling with debt management, seek counsel. The Monetary Authority of Singapore (MAS) offers a free credit counseling service that can provide guidance and support.
