Essential Considerations Before Applying for a Loan

Something that not many people do is calculate their monthly expenses. Before getting a loan, you must make sure that you know your exact monthly income, your expenses, and everything that is related to money, especially on a monthly basis. After making all of the calculations, try to add the loan repayment to that amount. Are you sure that you can pay it? Can you organize your money in such a way that the loan will not make you financially uncomfortable? Also, it’s important to understand your DSR because a Singapore moneylender will use this metric to determine your ability to pay back the loan.

DSR stands for Debt Servicing Ratio, and it measures how much of your monthly income goes towards paying back debts. There is the TDSR, which stands for Total Debt Servicing Ratio, and it’s for property loans; it says that you can no longer borrow if more than 55% of your monthly income is going towards debt repayments. And, for HDB flat and EC purchases, there is the MSR, which stands for Mortgage Servicing Ratio; and it says that your monthly mortgage repayment must not exceed 30% of your monthly income. Pretty clear, right?

Evaluate Cash Flow

If you are thinking of getting a loan in Singapore, it’s important to evaluate your cash flow. To put it as simply as possible, get a pen and a piece of paper, and write everything down. As previously mentioned, it’s important to know your monthly financial situation down to the last penny. Put down your monthly income, and start subtracting the biggest payments of every month (rent, utilities, groceries). Then, don’t forget to add the little things, like the phone bill or subscription to entertainment platforms. How much are you left with? Can that cover the monthly loan repayments?

The loan should not be an immense trouble to pay back. You must always have some money in case of emergencies. Basically, before getting a loan, you must think of every scenario. It’s best to have some savings before getting a loan, specifically for emergencies. Around 3 or 6 months of living expenses saved up could really make the difference. If you are not able to save that much, saving any small amount could help you someday. Saving up even only $100 every month could cover the expenses for Christmas gifts (so you won’t have to worry about those)!

Understand Credit Score

Your credit score will play an important role when it comes to being approved or rejected when applying for a loan. The Credit Bureau Singapore (CBS) assigns the credit scores. As an example, 1000 is a poor credit score, while 2000 is excellent. The higher your credit score is, the higher your chances of getting approved for a loan; also, you will receive better loan terms and lower interest rates. So, if you are thinking of a loan application, check your credit score. But the whole talk about credit scores is useless if you don’t know what influences it.

Your credit score is influenced by various factors, like: payment history (if you have any late or missing payments, that’s going to drastically lower your credit score), outstanding debts, loan application number, and credit account history. So, before applying for a loan, it’s best to get a report of your credit score first. Knowing what your credit is can help you get an idea of the amount you will be able to borrow, your interest rate, and other details. Why? Because the calculations will change depending on all of these details.

How to Improve Credit Score?

Fortunately, there are some things you can do to improve your credit score. The first thing you need to do is to always pay every bill on time. No missed or late payments, as they greatly affect your credit score. Then, try to only use 30%, or less, of your credit limit. Show that you are stable and organized. The third tip is not to apply for too many loans or cards. The Bureau doesn’t like someone who’s hungry for money, and it will affect your score. Generally speaking, it’s best to always be responsible with your money.

Being responsible with your money, both when borrowing and paying, it’s what’s going to grow your credit score. Someone who can organize their finances is someone who’s trustworthy, and that’s what the Bureau sees, too. Remember to also check your credit score report regularly. Carefully look for errors, or for accounts that should’ve been closed. You also need to check for loans that you didn’t take, because identity theft happens more often than you would believe. If anything on that report looks off, dispute it immediately.