- Read the fine print on the loan document
- Do cross referencing with other loan providers
- Avoid applying for too many loans
- Use the right loan for the right purpose
Planning to get a personal loan to tide over your tight cash flow situation? Then here are probably the four most important tips you need right now as a new personal loan applicant. With these four tips, the ‘battle’ to secure a loan will be half won.
1. Read the fine print on the loan document
Like every other financial document, there are bound to be fine print on the loan document, be it the loan application form, loan approval form or any other form that is provided by the loan provider. The fine print can be a pain to read, especially with the small fonts and faded text colour. However, it is probably wise to read through every single word in the fine print to ensure that you understand what you are getting yourself into.
Sometimes, personal loans are ‘sold’ to you by financial agents who have vested interest in getting you to sign up for a personal loan. In order to get you interested in taking up the personal loan, they might leave out information that could change your mind on whether you should take up a personal loan.
For example, they might conveniently forget to mention that prepayment is not possible within the term of the loan or mandatory prepayment fees are applicable. Another possible omission is the introduction of stepped-up interest rates once the promotional period is over.
Thus, it is important to read through the fine print to understand what you are signing up for before you commit yourself to the loan.
2. Do cross-referencing with other loan providers
It might be difficult to understand every term and condition that is embedded within a loan application. One shortcut you can use to understand more about the loan you are applying for is to do cross-referencing with other loan providers.
For example, if you are planning to take up a personal loan with OCBC, you can approach the bank branches of DBS or UOB to seek their ‘opinion’ on the OCBC loan.
Even if the relationship manager from OCBC doesn’t fill you in with everything you are supposed to know about the loan, the relationship manager from DBS or UOB will fill you in with the ‘hidden’ terms in their bid to convince you to sign a loan package with them.
As a sensible consumer, you can then do cross-referencing based on the information provided by various relationship managers to decide which is the best loan package that suits your needs.
Another way you can do checks to ensure that terms are not hidden from you is to explore details of the loan that you are interested in through BankBazaar. BankBazaar provides important information about the loan within its loan description from all the banks, from costs to interest rate to promotion to fees and charges.
3. Avoid applying for too many loans
Applying for a loan isn’t the same as applying for a job, i.e. you do not send in as many applications as you can. This is because whenever you apply for a loan, it leaves a ‘mark’ on your credit record.
As part of its loan approval procedure, loan providers like the bank will check your credit record before approving a loan. If the bank realises that you have been applying for too many loans, it might make you seem desperate.
The banks could conjecture that you are in some financial difficulties and thus, rate you as a higher credit risk. They might either reject your approval or increase the interest rate that you need to pay for your loan to compensate for your higher credit risk.
4. Use the right loan for the right purpose
Loan providers offer a range of loans to consumers like yourself, from home loans to renovation loans to car loans to education loan. It is important for you to use the right loans for the right purpose, i.e. do not use a personal loan to purchase your car. There are two key reasons why you should apply the right loan for the right purpose.
The first reason is that specific loans that are being approved for specific purposes (e.g. renovation loan) have a lower interest rate compared to personal loans. Unlike renovation loans, loan providers are unsure of how you will be using the personal loan once they have disbursed the money into your account. From their perspective, it means that the personal loan represents a higher credit risk than a renovation loan due to the uncertainty.
Another reason why you should take specific purpose loans is to practice credit discipline. If there isn’t a specific purpose loan catered to your need, it is a forewarning that the loan isn’t something that most people take from loan providers. For example, taking a loan to trade forex or go for a holiday. Alarms should be ringing in your mind to warn you to rethink whether you are taking the personal loan for the right reason.
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