Most people resort to credit loans in Singapore when they experience a financial shortfall. It is a preferred alternative to other borrowing options since you get a free hand on how to use the cash. However, credit loans in Singapore are not immune to a bad reputation.

A part of the credit goes to our parents, who taught us early on in our lives that debts are bad. You must have heard at least one story of how people keep sinking more into debts. Such stories can make you feel like taking a credit loan in Singapore is a bad idea.

But what do you do when you need an urgent financial help? Personal credit loans seem appealing when you need to get out of a short-term money problem.

If you are confused about whether you should take a credit loan in Singapore or not, worry not. We bring you a detailed guide on the subject. Go through it and make an informed decision.

What are Good Debt and Bad Debt?

A debt or credit loan is a kind of borrowing. It makes sense only when it helps you in more ways than one.

Good debt is a debt that helps you reach your life goals. It is an investment in your future. For example, a student or a home mortgage.

On the other hand, bad debt provides no long return and is likely to pull you deeper into the debt cycle. Borrowing money to go on shopping sprees, recreation, or dining out are prime examples of bad debt.

When Should You Take a Credit Loan in Singapore?

1.    Consolidation of Credit Card Debt

One of the most common reasons for taking a credit loan in Singapore is credit card debt consolidation. When you apply for a loan and use it to pay off debts on credit cards, you’re combining all the outstanding balances into one monthly payment.

It is especially a good idea if you owe a substantial balance on one or more credit cards with high-interest rates. Taking out a personal loan to pay your credit card bills can save you money. It allows you to pay the balance down faster and pay less interest in total.

2.    Pay Off Other High-Interest Debts

A personal credit loan in Singapore can be more expensive than some other types of loans. However, a few credits have higher interest rates than personal loans, such as payday loans. If you owe one, replacing it with a new loan can save you some money.

3.    Cover Emergency Expenses

A credit loan is a low-cost option in case of sudden emergencies. For example, funeral arrangement fees can go relatively high at times. A credit loan can help you take care of your immediate financial obligations at affordable interest rates.

The same goes for surprise medical bills. Covering unexpected medical costs is stressful, especially if your doctor requires payment in full. Licensed moneylenders disburse loan money quickly, so you do not have to wait around.

4.    Credit Score Improvement

If you have a history of missed payments on your other debts, a credit loan is an opportunity for you to improve your credit score. You can do so by making your monthly payments timely.

Moreover, a credit loan in Singapore helps get a good balance on your credit mix, especially if you mostly have credit card debt. Showing that you can handle different kinds of credit responsibly reflects well on your credit report.

5.    Financing Necessary Expenses

Taking a credit loan in Singapore is cheaper than putting the bill on a credit card when you’re investing in new appliances, installing a new furnace, buying a vehicle, or making another major purchase. The same goes for when you use the financing for a major life event, such as higher education, a big anniversary party, a vacation tour, or a wedding.

When Should You Not Take a Credit Loan in Singapore?

1.    Financing Basic Living Expenses

Recurrent borrowing is a sign that you are in serious financial trouble. If you need to borrow money repeatedly to take care of your daily living expenses, it is time to re-evaluate your budget. A credit loan can lend you a helping hand in the short term, but paying it back with an interest can put in a bigger problem.

Take steps to cut your living costs instead of borrowing credit loans. Otherwise, you will be stuck in a high-interest debt cycle.

2.    Investment

Investing money is a wise decision. However, do not do it with the borrowed money. Investment does not come with a guarantee that your money will multiply. If you invest in unsafe investments or wrong assets, you can lose the borrowed amount.

Put a share of money aside from your monthly income to invest. Taking a credit loan in Singapore for investment is a bad idea.

3.    Can’t Afford Monthly Payments

A licensed moneylender informs you how much monthly interest payment the credit loan will cost you. If you cannot afford to pay it, refrain from borrowing the loan.

Putting yourself in a situation where you are at the risk of becoming a defaulter can prove costly. Your moneylender will report you to the credit bureau. It will affect your creditworthiness, and you are not likely to get loans in the future. Your credit score will fall dramatically. Moreover, debt collectors will come after you, making your life stressful.

Credit loans are not bad, given that you use them in the right way and under suitable circumstances. Before you take out a credit loan in Singapore, have a plan for how you’ll use the funds and repay them. Once you weigh the pros and cons of your action, you will have more clarity on your financial situation.

If your situation allows you to take a credit loan, Avis Credit can help you. We are a recognized and trusted moneylender in Singapore licensed by the Registry of Moneylenders under the Ministry of Law. Apply for loans that are suitable for you on our website today.