Sometimes, you might be thinking of taking out more than one loan from a licensed money lender. It could be due to a dire financial need, or you’re planning to buy assets or high-value property.
Whatever your purpose is, make sure to ask yourself these five questions first.
Do I have the means to pay back the loans?
This is the very first thing you need to consider before taking out any kind of loan—more so when taking on more than one loan. Is your income enough to consistently pay your monthly repayments in full? Also, consider your budget. Can you realign your expenses to prioritize repayment of your loans?
Most people who drown in debt are those who have not considered their financial capacity. They realize too late that they actually do not have the means to pay back their loans. For this reason, consider your financial situation first before taking out multiple loans.
Do I really need more than one loan?
Serious question: Why would you need more than one loan? Is your need for extra money so great that you have no choice but to take out multiple loans? If not, then chances are you can get by without applying for several loans.
You can even explore alternative means of getting extra funds. One way is to review your budget for any unnecessary expenses. Take them out of your budget, and you’ll be surprised at how much extra money you can have.
What is my Total Debt Servicing Ratio (TDSR)?
In Singapore, you are not allowed to go beyond a certain proportion of your income in loan repayments. This is where the TDSR comes in. The Monetary Authority of Singapore (MAS) sets the maximum at 55% of your monthly income.
This means you cannot allocate more than 55% of what you earn each month to loan repayments. If the next loan you take out will exceed this percentage, you will no longer be approved for that loan.
On the other hand, do your best not to reach the 55% limit. After all, you would not want to spend more than half of your monthly income on just paying back loans.
Is my credit score good?
Your credit score is another important thing to consider, especially if you plan to take out more than one loan. Each loan you apply for may affect your credit score. If it is not good enough, you may find it harder to apply for multiple loans.
If you want to know your credit score, you may get it from the Credit Bureau Singapore (CBS). It costs $8.00 excluding Goods and Services Tax (GST).
What are the terms and interest rates of each loan?
If you have finally decided that you need more than one loan, carefully examine their interest rates and terms. Before signing any loan contract, make sure the terms are favorable to your financial situation. If not, shop around and find a lender that has better terms.
Remember, you are not obligated to sign the first loan contract presented to you. As a consumer, you have the right to choose which loan product you will take.
Conclusion
Handling multiple loans is a huge financial responsibility. It’s not something to take lightly. With that in mind, always consider these five questions first before deciding to take out more than one loan. It’s not always the best move, but if you are financially prepared for it, you can safely take out several loans.
