Taking a personal loan from a bank in Singapore is a relatively common practice and has been for some time now. For some, its like a “Get out of jail FREE” card that they wield in a last ditch attempt to keep creditors at bay. For others, its a carefully planned and well executed means of funding certain activities that they normally would not have the cash for. Whatever the case, they can be quite helpful when you need more cash than your piggy bank has in its hollowed out belly.
Here are 5 common reasons Singaporeans apply for personal loans.
1. To feed a gambling habit
Let’s face it. Between the soccer betting, the horse racing and the casinos, Singaporeans are spoilt for choice to indulge our gambling habits. Unfortunately, this means that we’re also needing more and more money to keep playing these games of chance. For some, Lady Luck keeps going to the toilet every time they try to place a bet and they end up losing their pants at the tables. Resorting to a personal loan to continue is not a good idea, but somehow a reasonably popular one with punters here.
If you really, really, feel the need to dive into the casino and gamble, we can’t stop you. But we can provide you with 5 gambling safety tips that would hopefully save you from losing too much.
Just in case in needs to be said, using your credit card for a cash advance to fund your gambling habit is like trying to put out a raging fire with gasoline. Not only are the interest rates for cash advances ridiculously exorbitant (up to 28% per year, charged daily!) but there’s also a cash advance fee of 6%. That means if you take a cash advance of $1000, you’re automatically poorer by $60. Even before you’ve re-entered the casino, you’ve already lost.
While we’re DEFINITELY not condoning borrowing money to gamble, it really does make more sense to borrow using a personal loan than to use a credit card cash advance. Though you have to borrow at least $1000, a personal loan’s interest rate will usually never exceed 20% per year. Especially if you use a personal loan comparison tool to find the best interest rates.
2. To buy second-hand watches or other expensive 2nd hand goods
Credit cards are great when you’re buying something new. You don’t need to worry about carrying lots of cash around. You can get cashback or air miles when you charge your card. Credit cards sometimes even allow you to make purchases using 0% interest instalment payment plans, which is often very convenient because it spreads out the cost over several months.
But that luxury goes away when you’re dealing with second-hand items. Because you’re usually making an arrangement with an individual, your credit card will be pretty useless. The transaction is often done in cold, hard cash, or via a bank transfer. That means if you’re buying a second-hand Rolex Submariner, for example, you’re probably expected to fork out several thousands of dollars. In cash.
So some folks resort to taking out a personal loan to fund the watch purchase, or any other big ticket luxury item. By choosing a loan with a 1 or 2 year tenure, you’re essentially purchasing the second-hand item on an instalment plan and paying a reasonable amount every month. This is a pretty decent idea, provided you can keep up with the payments on time.
3. To go on a holiday!
We’ve told you how to visit popular destination cities like Melbourne, Rome, London and Barcelona for a week on a budget of no more than $1,600. Going to Reykjavík, Iceland for less than $2,000 is actually a doable thing. Sometimes, taking a more expensive trip is something you may want or need to do and some folks here have resorted to a personal loan to fund the trip.
Again, this isn’t the worst thing you could do, but do remember to plan ahead for the payments and make sure you don’t take too long a tenure to pay off the loan. Last thing you want is to keep snowballing these loans every time you decide to take the grandma, the kids and 3 cousins to see the Eiffel Tower.
4. To renew a COE
Singaporeans have had the misfortune of seeing COE prices rise to the point where its more expensive than the actual cost of the car in some cases. And because you cannot take a car loan to renew a COE, turning to a personal loan has become a viable option for some.
You get to pay off your COE in instalments, and you also get to control the tenure of the loan. Say you take on renewing your COE for another 5 years, the loan quantums offered by banks for personal loans should be able to cover this in most cases. Spread the loan out over 5 years and viola, “car loan” for your COE.
We think you shouldn’t do this if you actually have the cash to pay for the COE, as the interest rate payments would be way more than a car loan. If you don’t have the cash, this could be worth thinking about.
5. To do Credit Card Consolidation
This is the most obvious and common reason why folks take a personal loan. Your credit cards are all charging you at least 24% interest per year on your outstanding amount. There’s really NO reason to keep paying interest at that rate. Not when you can easily pay it off in full by taking a personal loan.
Using a personal loan is often the first step to become debt free. Say your credit card is charging interest at 24% per year. You have about $5,000 outstanding on it. Your credit card interest is costing you $100 each month. $100! Each month!
For illustration purposes, say you take a personal loan at 12% for the outstanding amount of $5,000, you only pay $50 in interest each month. That’s savings of $50 each month, or $600 a year!
Imagine what you could do with that $600 you saved! Actually, don’t imagine anything and just save it for paying down the rest of your debts.
What other common reasons would you take a personal loan for? Let us know.