Loans with collateral requirements are not something to take lightly. Yes, you will be able to take out larger amounts than other types of loans. But this is not the only thing you must consider. Even if you apply for this loan through the best licensed moneylender, the risks remain.
Before deciding on a loan with collateral, consider these four things.
You understand the risks
A loan with collateral carries an inherent risk, as you may lose your collateral if you fail to repay the loan. This risk is clearly stated in the loan terms, so make sure you understand this fully before signing the loan contract.
The best thing to do here is to pick collateral that’s all right for you to lose. It must not be a very important property or a highly prized possession. This way, in case the worst happens, you will not end up losing something too valuable to be gone.
Think carefully about what you will sign on as collateral.
You have a well-defined goal for the loan
Taking out a loan without a purpose is never a good idea. Especially not if the loan requires collateral. Before deciding to take out this type of loan, it’s best to define your goal for it first. Is it to purchase a high-value asset? Is it to fund a business idea? Is it to give you enough cash to purchase your dream home? Whatever your goal is, you must first make it clear before applying for the loan.
Once you have attained the goal, focus on repaying the loan. As much as you can, pay the full amount every month, and make those monthly repayments on time.
If your budget allows, you can even decide to pay more than the monthly due for some months. This way, you can pay off the loan faster, and you can save on several months worth of interest.
Your credit score is good
You need a healthy credit score to qualify for these loans. If you ask the CBS (Credit Bureau Singapore), a good credit score is between 1,844 and 2,000. If your credit score falls within this range, you will most likely be approved for loans with collateral.
If your credit score is lower than 1,844, you can still apply for this kind of loan. Some lenders and banks might allow it. But if it’s lower than 1,723, you might have trouble applying for any kind of loan.
You have the means to repay the loan
The most crucial consideration is whether or not you can repay the loan. Of course, a loan is borrowed money, so you have the responsibility to pay back the money lent to you.
Before you decide to take out a loan with collateral, check your monthly budget first. How is your income compared with your expenses? Can you factor in monthly loan repayments without straining the budget for your needs? If your budget is tight and you’re not sure you can afford the monthly repayments, think twice before taking out that loan.
Conclusion
Taking out a loan with collateral is a decision you have to think about well. Consider your financial capacity, credit score, and financial goals, as well as the risks involved. You will be putting a valuable possession or property in the hands of the lenders, so think about this carefully.
But if you understand the risks and are willing, go ahead and apply for that loan. As long as you can pay it back, your collateral will remain in your possession.