In August 2021, experts reported that the number of young adults in Singapore borrowing money has increased. The Monetary Authority of Singapore (MAS) has tightened its restrictions to avoid default risks. But generally, you can count on Singaporeans to pay back their loans on time. From March 2020 to March 2021, the average monthly default rate of borrowers under 30 has remained less than 0.7 percent.
But on the other side of the fence, 1 in 3 Singaporean young adults face difficulties managing their debt. This was discovered in the Financial Inclusion, Wellness and Resilience (FInWR) survey by Citi Foundation. The same study has also found that 19 percent of Singaporeans between 18 and 30 struggle to make ends meet.
On the bright side, nearly all (96.9 percent) 1,068 survey respondents have started planning for retirement. This shows that despite their financial difficulties, Singaporeans are still long-term thinkers. And it makes sense to borrow money if you need to save for the future. But what are some excellent borrowing practices? Is getting a loan the way to raise funds more efficiently?
Good Borrowing Practices
Borrowing money isn’t bad. Loaning has been a practice since ancient times, so it is legal to raise funds and keep money moving. But not all borrowing practices are sound. Some of them will land you in more significant obligations than relief.
To ensure that your debts will be beneficial, stick to these borrowing practices:
Borrow from a Legitimate Lender
Instead of borrowing money from your family or friends, go straight to a legitimate money lender. Relying on your friends or family might be more tempting since they won’t likely charge you interest. But still, a legitimate lender can give you the amount you need with repayment terms that suit your situation.
Borrowing from family or friends causes stress on their end and yours. Even if they trust you, they still can’t get a guarantee that you’d pay them back. As such, you can’t be sure if they’d lend you money in the first place. Your family and friends can’t ask for collateral, so they’d be getting the shorter end of the stick if they let you borrow.
If you don’t want to provide collateral, you can get an unsecured loan from a lender. However, they may charge you higher interest. That’s because your default risk can be higher if you don’t provide collateral.
Save for Emergencies
Ideally, you should create an emergency fund as soon as you start making money. So if you’re a Gen Z, the time is now. You can use the fund on urgent expenses, helping you avoid borrowing. And if you do end up borrowing, you can also use your emergency funds to pay back the loan in case you fall short on cash.
Best Places to Put Borrowed Money
Millennials and Gen Zs are now at the ripe age for buying a home. If you’re sick of renting, see if you can qualify for a mortgage. Getting a mortgage can improve your credit. If you can’t pay it back, you can refinance it to reduce its interest. And in time, when you get enough equity from your home, you can borrow against it for home improvements.
Emergency expenses, like home or car repairs, medical treatments, or funerals, can be financed with a loan as well. Some lenders offer online applications for personal loans used for such purposes. You can find out if you’ve been approved in minutes. An alternative to this is getting a payday loan, which is convenient but comes with a hefty interest rate.
Debt consolidation is another loan you can get to combine all your existing debts. It transfers your debt to another lender, who’s the one you need to pay back this time. This is often helpful if you are drowning in credit card debt.
Major Life Milestones
You can also finance a wedding, baptism, or new property with a debt. But using borrowed money to pay for your entire wedding ceremony isn’t advisable. Instead, pay for your dress or caterer with your credit card, for instance, then pay for the rest in cash or check.
An auto loan typically has a lower interest rate than a personal loan. But note that cars depreciate fast. In a year or two, you’d be paying for an aging car with the amount of a brand-new one. So only get an auto loan if you can maintain a vehicle in tip-top shape.
A reason not to get a personal loan is you’re struggling to make ends meet. It might seem feasible, but you need to pay back your loans with interest. During tough times, strive to make more money instead of increasing your financial obligations.