Wouldn’t it be great to be able to afford everything you need or want in life? However, in reality, this always isn’t possible for many people. Singapore is one of the most expensive cities to live in. A good chunk of your salary probably goes into funding the basics such as keeping a roof over your head, clothing and putting food on the table. There’s little left over for saving or spending on other things.
It is therefore not surprising that many Singaporeans are opting to take credit to afford the things they wouldn’t be able to afford on their salary. This allows them to pay for items or services over a longer period, making these things affordable.
There are various types of credit in Singapore. These include bank loans, credit card loans and personal loans from moneylenders. Bank loans sometimes come with various stringent requirements. They are often given for a specific purpose, such as buying a house or car and require collateral as security for the loan. In addition to this, it can take weeks to secure a bank loan. They are therefore, not the best option if you have an immediate need for cash.
Credit cards are one of the most popular lines of credit in Singapore. They are convenient for consumers and are accepted by just about every supplier. You can use your credit card to pay the rent, pay your medical bills, hire a car as well as shop in the mall.
The Pros of Credit Cards
1. They are convenient
Credit cards are an easy and convenient way to purchase items and pay for services. They are widely accepted in both online and traditional brick and mortar stores. This means you can shop anytime and anywhere without worrying about the amount of money you have in your wallet at the time.
2. They offer greater safety
Shopping with a credit card offers greater safety than shopping with hard cash. You’ll only need to carry a piece of plastic. No need for walking around with wads of cash that will draw attention. Let’s not forget that carrying a large sum of cash can weigh you down. Having a credit card reduces the risks of daylight robbery.
3. They come with lots of perks
Credit card companies offer lots of perks, such as discounts when shopping at certain stores using their cards or giving you frequent flyer miles that you can use when traveling. You can save a lot of money by taking advantage of these perks.
The Cons of Credit Cards
1. The transaction fees can be high
Credit cards can offer perks and rebates because of the high processing fees that they charge their customers. However, many consumers fail to notice just how high these fees are, which are often included in the prices quoted by participating shopping centers, airlines, supermarkets and restaurants.
Many Singaporeans opt to use their credit cards abroad while traveling instead of exchanging their cash to the local currency. However, this is just another way for credit card companies to make money. They make a lot on Forex rates every time you use your card overseas.
2. Their interest rates are exorbitant
Credit card loans attract very high interest rates. Consumers have been known to pay as much as 30% per annum on a credit card debt. Even with all the ‘savings’ through discounts and other perks, you’ll still spend a lot when paying back the debt. It’s easy for your debt to snowball and sadly, some consumers find themselves knee deep in debt with never ending repayments to make.
3. They encourage overspending
Many people like to use their credit cards since they don’t have to worry about not being able to afford the item or service at that very moment. They can use their credit cards and pay for it later in installments.
The problem with this is that it gives the consumer the illusion that they can spend much more than they ought to. Many people hardly hesitate to pull out their card to make a purchase. When they hit the limit with one card, they quickly pull out another.
Overspending is a habit that can be tough to overcome. Very often, people who can’t control their spending end up in deep debt.
Personal Loans from Licensed Moneylenders
Personal loans from moneylenders are building in momentum in Singapore. However, the term moneylender has got a bad rap from media. Many people associate moneylenders with loan sharks. They think that they will break their legs if they fail to repay their loans.
Moneylenders in Singapore are regulated by the Ministry of Law. This government agency maintains a registry of moneylenders. Registered moneylenders need to adhere to strict guidelines to maintain their licenses. These include guidelines for maximum interest rates, as well as maximum loans to give. These guidelines are designed to protect borrowers. To find out more about moneylenders and the financial industry in Singapore, here are a few online communities you can explore to broaden your knowledge.
Moneylenders are known for offering personal unsecured loans. You therefore do not require collateral to obtain a loan. They are also known for approving loans quickly. You can have the money in your bank within hours of applying for the loan.
The Pros of Personal Loans from Licensed Moneylenders
1. They offer cheaper interest rates
Moneylenders are known to provide competitive rates to attract borrowers. The interest rates are far below what credit cards charge on their loans. Taking a personal loan is therefore a great idea for large purchases.
2. You can access fixed interest rates
Moneylenders usually provide personal loans with fixed interest rates. Credit cards on the other hand have interest rates that keep shifting. You are therefore sure of what you will be repaying the moneylender, unlike with the credit card company. You may find that your debt snowballs in a short time due to increased interest rates.
3. The impact on your credit score will be less
Unpaid credit card debts often become large debts because of the high interest rates. Therefore, they will have a major impact on your credit score. However, personal loans won’t have a large impact in comparison.
4. You can access bigger loans
Are you looking to purchase a big-ticket item such as a car? There’s a limit on your credit card that you can’t surpass every month. Personal loans give you access to larger sums of money. You can therefore purchase those items you want and pay for them in installments.
5. They offer more flexible terms
The terms of personal loans are more flexible than those for credit card loans. This is in terms of loan tenure and rates. Credit card terms are often fixed.
The Cons of Personal Loans from Licensed Moneylenders
There are more requirements to access a personal loan
Credit cards are handed out to practically anyone with no regard to your annual income or credit score. The requirements for obtaining a personal loan on the other hand are more stringent. Your credit rating and annual income will determine whether you can access a loan and how much.
If you’re looking for a line of credit, consider the pros and cons of each option before you decide. If you’re looking to purchase low cost items quickly, then a credit card would be ideal. However, big ticket purchases or spending would be best funded by a personal loan.
No matter the line of credit you choose, be sure that you can repay the loan in good time to avoid penalties or ruining your credit score.