Singapore is known for its high cost of living. With expenses piling up, some people might consider taking out a small loan to boost their income. But is it really worth it? Let’s break it down.
A small loan in Singapore typically refers to a sum of money borrowed for a short period, usually a few months. While it can provide quick cash, it’s important to weigh the pros and cons carefully.
Reasons People Take Out Small Loans
There are several reasons why people turn to small loans:
Bridge Income Gaps
Life can be unpredictable sometimes. Medical bills, car repairs, or other sudden costs can drain your savings. For these reasons, borrowing a small amount will help alleviate some of the financial burden and address the concern immediately.
If you’ve lost your job or your income has been reduced, a loan might also help cover your bills until you find a new job or your income recovers.
Fund Small Business Ventures
Entrepreneurial Singaporeans needing capital might use a small loan to fund a new business venture, such as an online shop or part-time business.
Consolidate Debt
If you have several small debts, combining them into one loan might seem like a way to manage your finances better, especially if the new loan has a lower interest rate. Doing this also takes a load off your shoulders as it makes debt management easier. This way, you only have to think of one bill and one due date monthly—no more confusing payment calendars.
Improve Self and Upskill
Some people borrow to pay for short courses or certifications to improve their job prospects. This is what you call investing in yourself. Pursuing a master’s degree or enrolling in an online course to add to your present skillset widens your horizons and opens more doors for earning potential.
The Goods and Bads of Borrowing Money
Like everything, small loans have their advantages and disadvantages.
Why You Should Take Out a Small Loan
- Quick Access to Cash: You get the money fast, which can be helpful in urgent situations, such as medical emergencies or unexpected house repairs that need immediate attention.
- Potential for Increased Income: If you use the loan to start a business or upgrade your skills, it might lead to higher earnings in the long run.
- Flexibility in Repayment Terms: Most small loans offer flexible repayment terms, making it easier to manage your finances. Talk to one registered money lender after another to know what each has to offer. Due diligence is still a must even if you’re only borrowing a small amount.
- Build Credit History: Paying your loan on time can help build a good credit history, among other things. Establishing a good credit history improves your creditworthiness and increases lender confidence when you decide to borrow a more substantial amount in the future.
Why You Shouldn’t Take Out a Small Loan
- High-Interest Rates: Small loans often come with higher interest rates, which means you’ll end up paying more than you borrowed. Always read and understand the loan terms before signing the dotted line.
- Debt Accumulation: If you’re not careful, you might find yourself in a vicious cycle of borrowing to pay off old debts. Only borrow when absolutely necessary. Otherwise, consider other alternatives.
- Potential Financial Stress: Juggling daily expenses with loan repayments can be quite taxing, especially if you have limited resources.
- Impact on Credit Score: Just as making prompt payments increases your credit score, missing loan payments can do the opposite. This lapse will make it harder to borrow a larger amount in the future.
Small Loan Alternatives
Before you take out a loan, ask yourself if it is necessary. Ideally, borrowing money should be your last resort, especially if it isn’t urgent. Here are a few alternatives to generate extra cash for your needs and wants:
- Freelancing or Part-Time Work: Extra income can help you save for emergencies.
- Selling Unused Items: Decluttering your home can also bring in some cash.
- Renting Out Spare Space: If you have a spare room or parking space, earn extra income by renting it out.
- Government Assistance Programs: Check if you’re eligible for government assistance programs.
- Budgeting and Saving Strategies: Thoughtful financial planning and disciplined money management can help you avoid the need for a loan.
Wrapping It Up
Small loans can be a tempting option, but it’s important to think carefully before borrowing. Weigh the pros and cons, and explore alternatives.
If you do decide to take out a loan, make sure you understand the terms and conditions and commit to repaying it on time. Remember, good financial planning is key to avoiding debt problems.
