Small loans from a licensed money lender Chinatown or anywhere in Singapore may be things that you think are low risk and easy to pay off. They’re just small loans, after all. Your income is more than enough to pay down the monthly dues.
But there is still a risk. Small loans may turn into big problems later on, if you do not handle them well. To avoid this situation, here are five things to keep in mind.
Borrow within your means to repay
This is the most important rule when taking out a loan. Even small loans can balloon into something you cannot afford to repay.
To avoid this, assess your finances first before deciding to take out even a small loan. Can you consistently make the monthly repayments in full, given your income and budget? If you have any doubts, don’t take out the loan. Only do so when you are quite sure you can pay the monthly dues consistently.
Make your monthly repayments in full
Here is another rule of thumb to get out of debt quickly: avoid paying anything smaller than the full amount of each monthly repayment. The more you can pay consistently, the less time it will take to pay off the loan.
Choose loans with good terms
You can shop around and visit different lenders before deciding which loan to take out. Different lenders have different terms, so pick the one that best works with your financial situation.
If you need more time to pay off the loan, choose a lender that offers longer loan tenures. If you’re concerned about interest, go with the lender that charges the lowest interest rate you can find. It also helps to seek out lenders that let you negotiate the loan terms.
Watch your spending
Often, the reason you have to take out a loan is you spend too much. In turn, you run out of money during times of need.
To avoid this, take a look at your monthly income and expenses. Are your expenses lower than your income? If so, then you’re on the right track.
The next question is: Do you have any expenses that are actually unnecessary? It could be a streaming subscription you rarely use or buying a coffee from Starbucks every day. Eliminate those unnecessary expenses, and you’ll be surprised at how much money you will end up saving.
Build an emergency fund
Instead of relying on loans, build an emergency fund instead. You can start with the money you’ve saved from removing your unnecessary expenses. Then, set aside an amount of money each month to your emergency fund.
A good rule of thumb is to have at least six times your monthly expenses as your emergency fund. This way, in case you lose your main source of income, you can still live decently for the next six months while you look for a new job, business, or any means to earn. You will not need to take out a loan.
Conclusion
Small loans may be affordable at first glance, but they can still pose huge financial problems if not handled correctly. Take note of these five steps you can take to avoid this pitfall. If you do it right, you may not have to take out these small loans at all.
