4 Steps To Find The Right Lender For Your Personal Loan

A personal loan is like a car; it can take you to places you’ve never been before more often and much faster than the MRT.

As someone who got her driver’s license near the age of 35, I can tell the difference.

But back to personal loans.

If these financial packages are like cars, your lender is like a good mechanic who can help you care for it and ensure it works properly.

The right lender should provide you with the best loan terms that suit your needs – allowing for reasonable interest rates, flexible repayment periods and suitable security or collateral requirements (if applicable).

Below are four tips on how to find the best lender for your personal loan, with plenty of examples* to help you understand.

*Disclaimer: Do note that all these examples below are just that – examples. Depending on your financial background and required amounts, you may not qualify for these conditions.

1. Estimate Your Needs

Before looking for a lender, ensure you’ve estimated just how much money you need to borrow and how fast you want to become debt-free; this will allow lenders to offer more tailored loan terms specific to your needs.

Let’s see this example:

You need $30,000 for some home renovations:

Your lender can direct you to a renovation loan if you need a lower-rate option: This will help you become debt-free faster or pay a lower installment for the same tenure.

Your lender can offer a personal loan if you also need to purchase furniture: If you’re like me and most Singaporeans, renovations aren’t just about rebuilding your walls. You may also want to renew your sofa or buy cute decor pieces.

Let’s see another example, which is inspired by my own experience:

You need a $50,000 loan. You apply for a 2% interest and 36-month tenure. In this case, your installment is $1961.64.

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Now, take into account the Total Debt Servicing Ratio (TDSR).

This rate defines the percentage of your income going towards servicing debts, including any existing credit facilities.

In Singapore, that TDSR is 55%. For example, if your gross income is $4,000, your total loan installments should be below $2,200.

The example above qualifies for this rate.

Let’s assume you have an outstanding credit facility that costs you $300/month.

Although that rate is tiny, it can derail your plans of getting that $50,000 loan for 36 months.

Pro tip: If your TDSR ratio is high and you need to lower it, there’s no shame in asking for a longer repayment tenure with a slightly higher interest rate.

A good lender should provide options tailored to your needs.

That brings us to the following point:

2. Search Around

Don’t just settle on one lender – compare different lenders and their offers before settling on one. Shop around online and read customer reviews of potential lenders before deciding which one is right for you.

In the example above, you can find a lender to offer you an extended tenure or a smaller interest rate.

For instance, a bank can offer you the following conditions:

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You must qualify for that sort of loan first. Banks require a minimum income of $30,000 per year – just to offer you the equivalent of four times your monthly income.

I’m looking at you DBS.

In fact, DBS has an “amazing” threshold of $120,000 (per year, thankfully), over which it can lend you ten times your monthly income.

What if you don’t qualify for a bank loan because your credit score needs to be higher?

Your lender can help you explore secured loan options with lower interest rates. Here’s a scenario in which you need to borrow that $50,000 for 36 months, but at a 1% interest:

As you can see, the installment corresponding to this example would be $1,176.84 – well below your TDSR.

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3. Compare Interest Rates And Fees

Look at the interest rates offered by lenders, as well as any associated fees or penalties. These can add up quickly, so ensure all costs are included in your calculations when selecting a loan.

That brings us to a key point:

Always do your calculations instead of falling prey to your biases.

I’m guilty of that too,

For a long time, I believed that licensed moneylenders – albeit legal – practice exorbitant interest rates. Now, I know that the government vets these agencies, and they’re legit.

But I was also wary about the numbers.

Until I did the math for myself.

Let’s say you need a $10,000 loan to have your dream wedding. A bank can offer you the following conditions:

• 1-year tenure
• 3.88% p.a.
• $865.67 installment

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But the bank may also decide you don’t qualify because of your credit score or income. Here is what a legal moneylender’s offer can look in this case:

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• 1-year tenure
• 2% interest per month
• $945 installment

Note that there is just a slight difference ($79.93) between these two loans’ installments EVEN THOUGH the second loan has a 2% rate, whereas the first one boasts 3.88% per year.

Why does this happen?

Because the interest rate is calculated from your outstanding amount, not from the amount you borrowed. So although the second loan’s rate is 6.19 times higher, you won’t pay 6.19 more for this loan.

4. Read The Loan Terms And Conditions Carefully

Read through the loan’s details carefully before signing anything, as this prevents unpleasant surprises down the line.

Here are some of these conditions:

• Maximum loan amount
• Repayment tenure
• Interest rate and fees
• Processing and admin fees
• Late payment fees and penalties

And remember always to put pen to paper.

For example, a bank may sport a lower rate, but you saw the installments are similar even with a 6x higher interest.

Don’t make a goal out of a lower installment, either.

The $10,000 loan with a 1-year tenure and 2% interest that gets you a $945 installment can look worse than the same loan with a 2-year term and $528 installment:

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While this option is more budget-friendly, you are tied to this loan for an extra year.

Let’s say your car breaks down in 14 months. If you want a new one, you may not qualify for an advantageous car loan because of this pre-existing debt.

Remember that TDSR?

Thanks to it, your car loan’s installments will be higher for all its tenure (usually seven years).

How To Find The Best Lender

Here’s another piece of advice from my personal experience:

It’s always a good idea to have the contract checked by an independent financial adviser first. This way, you can rest assured that everything is in order and your interests are secured.

Pro tip: If you can’t get a personal loan, other types of financing are available for different needs.  For instance, if you need money for home renovations or medical expenses, consider taking out a renovation or hospitalisation loan instead. These loans offer lower interest rates and longer repayment tenures, giving you some much-needed breathing room.

And I also encourage you to use a personal loan calculator to compare different options. That takes a lot of time, but it ensures you’re doing hands-on calculations.

Alternatively, Loanstreet can help you by sending you personalised quotes from different lenders in Singapore. All you have to do is apply for free using your SingPass. It takes just a couple of minutes, and Loanstreet will send you its best offers within the hour.

You can check our offers here.