Check your new loan terms and conditions for hidden charges and fees. If you feel they are unessential, you can make a dispute. Assess your payment capacity thoroughly.

Singapore is perhaps one of the few countries that have recovered quite quickly from the recent global economic recession. People are spending more on major investments and big-ticket items such as real estate properties and cars, among others.

With the current spending trend in Singapore, it is only natural that there are more people considering new loan plans to fund their expenses and investments.

Financial experts warned interested parties to be cautious and smart when getting a new loan. While this period may be the best time to consider big-ticket items and expenses, the terms and conditions for getting a new loan did not change. The new loan market may be more competitive, which means those looking for a new loan would have more options, but the fundamental aspects of a new loan remained the same. The factors you need to check and assess before taking a new loan have not changed.

Your lender

A crucial aspect that you need to check before applying for a new loan is your potential lender. Know everything there is to know about the institution that will give you a new loan. Start with a research on bank details, lender history, and government accreditations, among others. While this information may cover the base, it is advisable to find out more.

Check first if you qualify for a new loan. Find out what the lender requires from new loan applicants. Some lenders do not only look at your credit rating but also consider other factors such as age, monthly income, and assets. There are also lenders who only entertain new loan applications from existing customers or clients.  This requirement is usually enforced by banks.

Looking into these considerations will save you time. As a new loan applicant, you want to focus only on institutions where you qualify.

Rates

Find out which institutions will welcome your new loan application, and then look at your credentials as a borrower, and how it can benefit your new loan terms.

Lending institutions usually advertise standard interest rate for a new loan, but take note that in most new loan cases, this advertised rate is not applicable. Check with the lender what interest rate you will get when you take a new loan.

Your monthly loan payments are composed of two things: the interest rate and the repayment amount. The interest rate is a percentage of your loan principal or the amount you borrowed, which you pay in installments for a period of time. The repayment amount is the payment rate for the principal of the new loan.

The interest rate depends on various aspects. A major factor is the borrower’s risk of investment, which can be determined, although not solely, by the borrower’s credit rating. The riskier the new loan, the higher the interest. Some institutions assess the borrower’s assets and its liquidity and translate these factors to the interest rate of the new loan.

There are other factors as well, such as the country’s unemployment rate and inflation rate.

Your credit rating is not the only distinguishing factor. When you take out new loan with longer loan tenors, you pay higher interest rates despite the smaller monthly repayment rate. The risk of investment is the rationale for the higher interest rate. The longer your new loan tenor, the higher the chance you might default on the loan. This justifies the higher interest rate. If you are looking for more practical loan, consider taking a loan with shorter payment period.

Interest rates also vary depending on the type of new loan you are getting. This is due to the intrinsic characteristics of the loan. With a fixed loan, you pay for a pre-set interest rate for the duration of the term. Adjustable loans, on the other hand, have changing interest rates that can fluctuate according to various factors, including the lender’s discretion. Compared to fixed loans, adjustable loans usually have a lower initial interest rate, but it can balloon significantly at the tail end of the loan.

Financial experts advise borrowers to consider an adjustable new loan if they are planning to resell the property before the loan term ends. Adjustable loans usually have their highest interest rate during the last few years or months of the term. When they resell the property, they can avoid the interest rate increase. However, this strategy can also decrease the value of the property, since the buyer has to shoulder the unpaid principal of the loan.

The future of your loan

When getting a new loan, it is wise to consider your lender’s early payment terms. Most lenders and financial institutions charge a fee when borrowers pay the principal debt earlier than indicated on the new loan terms. This is because lender loses the income from your interest rates. The rate of the interest, after all, considers the duration of the loan, so this is quite logical. Even though you are currently not in the position for early payment, be on the safe side and inspect early payment terms.

You need to consider every aspect of your new loan and make sure what you are paying for is essential and standard. If there is any possible item that can be changed to make your monthly payments smaller, take advantage of it. Payment protection insurance (PPI), for instance, can be taken out of your loan. The PPI protects you in case you are unable to pay your monthly installments due to an accident or unemployment. While it is useful, PPI is not a prerequisite for a new loan requirement because not everyone can make a claim. If you are unemployed during the time you were given the loan, you are not eligible for the claim, making those PPI payments useless.

Some financial institutions offer a leeway for non-payment, so talk to your lender and ask about their loan non-payment and financial assistance policies even before you commit to the new loan. 

Check your new loan terms and conditions for hidden charges and fees. If you feel they are unessential, you can make a dispute. Assess your payment capacity thoroughly.  It is never too late to ask yourself if you can really afford the new loan.