When choosing a money lender, Singaporeans have lots of choices. So much so that choosing a good lender can be overwhelming. Because of this, some borrowers make unnecessary mistakes that cost them money in the long run.
Here are four of those mistakes to avoid when choosing a lender.
Forgetting to verify if the lenders are legitimate
Finding out if a lender is legitimate is a crucial first step. Some borrowers neglect this, so they end up falling for illegal, predatory lenders. Illegitimate lenders are harder to track down and hold accountable if they use unethical practises.
The best way to know if a lender is legally operating is to consult the website of the Ministry of Law (MinLaw). They maintain a database of registered, licenced moneylenders in Singapore. If the lender you’re considering is in the database, you can be sure that it is legitimate.
If the lender is not listed in MinLaw, you can assume that they are illegal. Walk away and find a legitimate lender.
Considering interest rates but not other factors
Interest rates are not the only important aspect to compare. Consider the full range of fees each lender charges, such as late payment fees, processing fees, and prepayment penalties. All of these add to a loan’s total cost.
Also, the advertised interest rate may not reflect the real thing. To avoid getting duped, always ask each lender for the effective interest rate (EIR) of the loan you’re considering. The EIR will give you a more accurate idea of how much interest you will have to pay.
Not paying attention to repayment terms and tenure
Monthly repayment amounts and loan tenure will also affect the overall cost of a loan. Some borrowers go for lenders offering the lowest monthly repayment amounts.
But what they’re not aware of is the tenure may be longer or the interest rate is higher – or both. The loan would then cost them much more than a different lender who may impose higher monthly repayments but lower interest and shorter tenure.
Falling for fancy gimmicks
Some lenders advertise gimmicky terms like “zero interest for the first month”. While this sounds appealing at first, consider the fine print.
Read the loan contracts of loans like this, and you’ll find that they are more trouble than they’re worth. You may not have to pay any interest in the first month. But on the 2nd, 3rd, and the following months, the lender charges you a much higher interest rate than what other lenders offer. Effectively, you will pay more overall for a loan that does not impose interest on the first month.
Fancy gimmicks like these always have a catch. Investigate first and find out for yourself if the lender you’re considering is worth their offer.
Conclusion
Avoid these four common mistakes some borrowers make when comparing lenders. This way, you can save money on interest and other charges if ever you decide to take out a loan.
Loans that cost less overall are easier to pay back. In turn, you can get out of debt faster and move on to building wealth sooner.
