5 questions to ask yourself before taking out a loan

Woman considering options before taking up loan with licensed money lender.
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5 questions to ask yourself before taking out a loan

checking blog post using mobile
Woman considering options before taking up loan with licensed money lender.



We all like to pay for things out of our own pocket, but sometimes borrowing money is the most viable way to cover big purchases. From personal loans to business loans, it can be a suitable option when you need to invest more than you can feasibly take from your savings.

Before you sign on the dotted line with one of Singapore’s licensed money lenders, you should always ask yourself a series of simple but important questions – even if it isn’t your first rodeo. The more time you take to properly consider your options, the more likely you are to set yourself up for success.

1. How much money do I need?

It might sound obvious, but many people agree to a loan based on guesswork and end up with unnecessary debt. Avoid this trap by calculating exactly how much money you need to achieve your goal and be sure to factor in all relevant expenses.

When buying a car in Singapore, for example, you would usually need to take the vehicle’s open market value and add Certificate of Entitlement (COE), excise duty, GST, registration and any other applicable taxes and fees. For more complex investments like starting a business, you need to consider a range of different costs including property rental, inventory purchases and hiring staff.

2. What is my financial position?

Before applying for a loan, it’s important to have a solid understanding of your financial position. Your income, savings, credit score, debts, spending habits and any other relevant factors should be considered to ensure you have a complete and accurate picture of where you stand.

You should also look forward and assess what your financial position could be in the short and long term, particularly if you were to apply for a loan that may take a number of years to repay. Job security is always worth contemplating: do you work a full-time job with a steady wage, or are you a contractor without guaranteed long-term work?

3. Can I afford to make the repayments?

 You would find yourself drowning in debt quickly if you don’t follow up on your repayments. The good news is you can avoid this scenario with careful planning and some healthy financial habits. Start by weighing up your income after tax against your current needs and expenses, which may include bills, groceries, subscriptions, holidays, gifts, savings contributions, existing loan repayments and money to set aside for leisure and emergencies.

This will help you calculate how much you can afford in monthly repayments to stay in a comfortable position for the full length of the loan term.

4. What happens if I don’t pay off the loan?

 It’s vital to be aware of the terms that apply to your loan if you fall behind on your repayments or cease them altogether. These may include late fees and a negative impact on your credit score; for secured debt (where the loan is backed by collateral) such as a mortgage or car loan, the licensed money lender may be entitled to seize the asset.

Even if you’re confident you can make your repayments, it’s a good idea to familiarise yourself with all the terms so you can prepare for any sudden changes to your circumstances.

 5. Have I explored all my choices?

There’s nothing wrong with borrowing money when you’re in a suitable financial position. Still, it’s always prudent to explore as many options as possible to ensure you make the right decision. If a loan is still the most viable path forward and is within your means, you can choose the best available option from a suitable legal money lender in Singapore with far more confidence.


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