Questions to Ask Yourself before You Decide to Borrow

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Questions to Ask Yourself before You Decide to Borrow

The recent regulations regarding caps on monthly late fees and interest rates have made borrowing from a moneylender in Singapore easier. That said, borrowers still need to consider how the loan will affect their finances in the future.

One does not have to abstain from borrowing. Paying your debts on time can boost your credit rating and help with debt consolidation. Practical borrowing also includes knowing where to buy from, for instance, a moneylender can give you instant money. To know what questions to ask yourself before you decide to borrow, read on.

Why am I really taking this loan?

The answer to this question depends on a number of other minor questions. The purchase you want to make might not be that necessary after all. It makes much more sense to save up money and make your purchase later. You will also have to ask yourself whether you can buy something that is cheaper instead. However, if the money borrowed helps your business to grow, it is a good idea to go ahead with the loan.

Will I be able to qualify for the loan?

Applying for a loan at a bank without the required credit rating can hurt your credit score. Debtors who have been turned down in the past look like bad risk. However, the same is not true for licensed moneylenders, with whom credit rating is not a primary requirement. The right thing to do is to ask financial institutions about their minimum lending requirements.

Will I have the liquidity that I want?

This will depend on the EIR (Effective Interest Rate) that you get. There are a number of ways to calculate liquidity, which reflects the actual cost of a loan. Loans that are to be repaid over frequent small installments offer less liquidity. It is always better to settle for lesser installments, though of higher amounts.

What is a good amount to borrow?

Before approaching your moneylender, you must know the actual amount of cash you require. To calculate this amount, create a cash-flow projection. If your clients pay you in 2 months, but you need to pay your vendors twice a month, extra money will be required.  It doesn’t reflect well on you to be unaware of the cash you need.

Will I be able to make the payments?

You should not have to suffer a cash crunch for the entire duration of the loan to be able to repay it. The loan may put a serious tab on any current expenses you might be used to. You will not be able to go on as many vacations. There could even be phases when you regret the purchase and miss payments. Do not let your debt-to-income ratio exceed 25%.

Preparing yourself to borrow money doesn’t end here. You will have to arrange the necessary documentation as well. Unlicensed financial institutions may resort to unlawful means and this could inflict undue hardship on your family. On that account, borrowing from a licensed moneylender is a much better option. The loan is granted fast and repayment is flexible.