We tend to be apprehensive when we talk about taking up Personal Loans, perhaps because some people have been known to misuse the facility and incur huge debts. But personal loans aren’t exactly always bad – for one, they come in useful when you need cash immediately or for big-ticket items. The key is to make sure you use the cash wisely and pay the debts off regularly. Here are five reasons why Singaporeans are taking up personal loans for their financial needs:
Possibly one of the greatest national hobbies for Singaporeans after eating is traveling. With loans increasingly easier to access, more Singaporeans are taking loans for more unconventional expenditure – traveling. While airline fares are decreasing, traveling is still an expensive holiday, especially when the entire family goes on the trip. For a trip to Europe for just a week, it could cost nearly S$10,000 for a family of four, even if they are traveling in budget style. Rather than paying a hefty sum upfront, some people have turned to personal loans for their holiday. It remains a point of contention if one should take up a loan for a holiday, but that’s another story for another time.
Unlike certain nations in Europe, Singaporean students have to foot their university fees, albeit at a subsidised rate. As local university fees are on the rise, local undergraduates are taking personal loans to finance their university education.
On average, a student at a local university will pay S$8,700 a year, which comes up to a whopping S$34,000 in total for the tuition fees. While students can choose to pay with their parents’ Central Provident Fund (CPF), many still end up taking up Student Loans for reasons such as their parents’ lack of funds or they simply prefer to finance their own studies.
The cost is even higher for those seeking an overseas education. For instance, getting a degree in Australia could incur a staggering S$35,000 per year. Personal loans certainly help in instances like these.
Buying a car is one of the big-ticket-item purchases for Singaporeans, mainly due to the hefty taxes and Certificate of Entitlement (COE) that come with the car purchase. A loan is often taken for the initial payment for the car itself and the COE, which has been known to hit as high as six figures. Some Singaporeans are not able to cough up the upfront cash, which would work out to 30% or 40% of the car value. This is when a personal loan comes into the picture for these people.
4. Housing & Renovation
Whether it is for young couples getting a Build-to-Order (BTO) Flat or family upgrading their homes, Housing Loans are among the most common loans in Singapore. According to a recent report by The Straits Times, with a median monthly household income of S$8,666, most Singaporeans can only purchase a flat through a bank loan. Similarly, for young graduate couples with salaries averaging S$3,300 per person, they would need a loan if they wish to purchase a BTO which averages S$350,000 for a four-room flat.
Let’s not forget the renovation costs too. According to Qanvast, it cost roughly S$50,000 for a typical HDB renovation. For Singaporeans earning an average managerial level pay, it would take a significant length of time to save up just for renovation. For those with heavy expenses, or for those unwilling to wait for so long, financing their renovation with a loan seems like a more attractive option.
5. Debt Consolidation
Debt consolidation, in a nutshell, is when one takes a loan to pay off other debts, such as credit card debts. It may seem a little counterintuitive to take a loan to pay off other debts. But when done right, this can result in a lower interest payment over a longer term. The interest rate for a personal loan is about 3-8% a year while the interest rate for credit card is 24%.
Other debts such as credit card debts sometimes incur high and possibly fluctuating interest, and the debts increase over time when you don’t have cash to pay off the principal amount. Debt consolidation usually charges a fixed interest payment. Hence, for individuals short on cash and with large high-interest debts, taking a loan for debt consolidation increases the certainty of their cash flow while allowing them time to budget and repay their debts, not to mention a lower risk of bankruptcy.