A guide to taking on loans in Singapore

And it's overwhelming, especially if this is your first one. So let's enlist the help of our Money Talk's guest today. She is Jen Ong, head of retail at GXS Bank. Jen, good to have you with us. Thank you for having us. Very excited to talk about this because I've made many mistakes when it comes to loans. So this is a good one. We all have to take up loans, right? So what are the key items in a person's life cycle when a loan is a must have and a

nice to have? Good question. So when it comes to borrowing, you started by saying that there are different milestones in someone's life, and I think one of the biggest ones that we have seen is renovation, right? If you talk about marriage loan or wedding loan, yes, you see people taking it, but most of the use cases that we see are renovation loans because Renovation can get big. You need someone to make sure

that you have enough money to see yourself through. Now when we think about loans, there's always this taboo about taking loans. Taking loans is sometimes you do need it. So putting the taboo aside, now you think about loans, you would think about interest rate. I think a lot of consumers out there saying, um, which one gives me the best interest rate and they make a decision based on that. That is not wrong. But then you need to go into the nitty gritty. You need to understand.

Is there any fees if I pay off early? Uh, how is the interest calculated? See that's a big topic, right? How is interest calculated? Everybody tell you interest is interest, but no, if your interest is monthly rest or daily rest, it becomes a different cost for the consumers. So what are the TNCs? So if let's say I have more money this time around, I want to pay off a little bit earlier, will I be penalized? If you look at what is happening in the market, there are fees like this. Yes, so fees.

You will be penalized if you pay early. Then that goes against the grain of taking a loan and being careful because if you have money to pay off a loan, you want to pay off a loan without penalty. So that's why you have to check the TNCs, know what you're getting into. OK, we will get into the nitty gritty, but just want to tackle the philosophical side of things first. How do I know what's a reasonable expense to take

up a loan for? So you mentioned things like wedding loans, rental loans, these are the more. ones. When do I know that taking a loan is a good versus a bad idea? Well, so you think about the opportunity cost then, right? So if let's say I'll give you an example, broken kitchen sink, you need to fix it. Now, are you saying that, oh, I don't have the money, I don't have the means, therefore I'm going to live with a broken sink? No. So you have to take a loan because the other alternative

is just not possible. So that there are areas you to think about when is a good time to take a loan. Like I said, taking a loan is on the surface sounds like a taboo, but if you think about it, housing loan. Yeah, everybody takes a housing loan. It's almost necessary. So the housing loan is there. Car loan, people take a car loan. So these are all utilitarian needs that you

have and then you need to take a loan. So to me, I've always tell people if you need to take a loan, be careful what is the cost of servicing the loan. That's where you need to remember. Taking a loan is something that is is something that you have to do, then make sure that you can afford it. One of the biggest thing to think about when taking a loan is the ability to pay back. That's right, right? So I can take a loan and don't pay back and then I'll be

in trouble. I can take a loan and stretch it too short. I will not have the ability to pay back because my disposable income cannot meet that monthly repayment. So you have to calculate your income, you need to calculate what is available after you put aside for all the necessities, then check out what is a repayment capability. If you want to pay off in 12 months, make sure you can. If you you may have to stretch it a little bit more to 18 months, but then it makes your monthly servicing

a little bit more sustainable. Now, when I'm shopping around for a loan, how do I make comparisons? What are the top three things, say, that I need to compare in order to decide what's the best kind of loan that works for me? Yeah. So the first thing you want to look at is the interest rate. Now, we talk about interest rate, um, you need to know whether It is like I mentioned, a monthly rest or a daily rest. What's a rest? The way interest is calculated, right?

So if let's say when we talk about monthly rest is let's say your outstanding amount is $10,000 right? And I made an early repayment of $7000 so my calculation should be based on the difference of $3000. But if you're on a monthly rest, it doesn't happen. They would just look at what is your previous month and interest is calculated. So it's a bit different. The other one will be fees, right? Yeah, so you

want to know is there a processing fee? So usually you will hear very low interest, but then there's processing fee and then you'll hear there's a penalty fee. So those are the things that you as a consumer, you need to take a look. I'm just curious, Jen, is there a loan that has no penalty for paying early? Because I've taken up a loan before and I had

the same mindset as everyone else. I want to pay it off early so that it's not a burden on my shoulders, not hanging around in my head all the time. But then there's a penalty that you have to pay because you're paying early. I don't understand that. Can you explain this to me? I think it is the cost of money. Money comes at a cost, whether you're a borrower,

whether you're a lender, right? I think there is a penalty fee because that money is set aside for for consumers to use it, so there is a timeline to it that this person. needs it for 12 months, so I can't use that money for something else because I'm lending it to this person. So in most financial, so there's this penalty, right? So, so if you return it to me, what am I going to do with it? So there's a penalty. Now back to your question, is there a loan that has

no penalty fee? Yes. Oh, OK. Flexi loan has no penalty fee. OK. Why is that? That is because when we designed the product, we took into account consumer's lifestyle. Now I am a bank employee, but I'm a consumer myself. I have gone through different stages where I needed a loan. So I've been through that and I understand that now if we really want to serve the consumers, then take away the

unnecessary stuff. But won't that come at a cost to A vendor like GXS Bank, so that's a good question, right? So we're not saying that we are doing our charity, we are saying that we may earn less, but we have customer loyalty. I will have to say that's quite a big gamble. I will have to say it's a big gamble. The thing is, not everyone can take up a loan, right? It depends on various, I suppose, factors on the applicants part.

I understand banks actually take a look at your credit score and I know from personal experience that you don't have credit, it's not necessarily a good thing. So why does our credit score matter so much when applying for a loan? Because that's the only way for organizations to determine payment capabilities. It's very easy to lend money. But you want to make sure that the person you lend money to is able to pay you back, right? It works both ways, right? It's good for the consumers.

I think fundamentally a lot of consumers out there. Do not put a lot of thinking into credit bureau score. They don't know that it is. It's only when you're applying for a loan and then when they talk to the officer, then you realize there's something called a credit bureau score. So we want to educate consumers to say that right now I mean we are young at 2025, you go take a credit card, forget to pay a bill,

you would think nothing of it. But if you continue to forget to pay a bill, 10 years later when you want a housing loan, your credit score is pretty ugly and that's where the challenge is, right? Yeah. So for us, I think it's important for consumers

out there, it's important to cultivate good payment behavior. So so so at GXS, if we give you a loan, we will also nudge you to pay your loan and we will tell you, hey, do not forget, hey, do you know that if you don't do it correctly, you may have to have a poor credit score 3 years down the track. And that's I think what we also tend to forget is the repercussions like you said, later on, you may forget it now and you may think nothing of it now and then when you pay it off,

it's fine. I've paid it off, whatever, but people often forget. that there are long term repercussions to that. Thanks for the reminder. Now, what do we need to think about when we have to take on multiple loans at a time? So I'm thinking a study loan at the same time as a mortgage, and I've been through that before. I had to pay off a mortgage while studying the renovation loan as well. It was very painful. 3 bills in a row. So what do we need to think about here?

I think the most important thing is the ability to repay your loan on a monthly basis. So calculate what is known as your debt servicing ratio. Yes, just calculate it, right? If you earn $1 and if you need $10 to pay off, do you have enough money to eat and sleep and you know, buy your groceries calculation you need to be able to sleep at night. So I think that's where you have to think about ability to pay. Now if you are really stuck, then maybe prioritize. What is more important? I mean to my

my housing loan is important, student loan is important. Rena maybe push it out. 6 months, but really think about your financial health before you overleverage. So I think what you're trying to say here is, think about it from a budgeting perspective, right? Really sit down, draw your budget, see what you are left with after all your regular expenses and look at that final figure and say, hey, can I manage this

every month or not? OK, and there are solutions to mitigate any of this if we feel like we can't pay a certain loan by a certain time. Yeah, so you're saying that I take it that you are a person has already taken a loan and now has a problem to say that, you know what, I took a loan, I can't. Yeah, so there's always you can always restructure your loan. Yes, you can always restructures are open to that, right? OK, let's talk about interest rates.

Something that is on everyone's minds ever since the pandemic and now it's a big deal because everyone's watching what's happening in the US. We are also watching what's happening in Singapore as well. Some people choose to max out their loans because the interest is lower in time and then they can use whatever cash extra that they have to invest on other things which give them higher returns. Is this necessarily advisable in your opinion?

It really depends on the returns that you expect to get, right? Is it short term or long term? Now no matter how you cut it, when you look at it alone and say that the interest rate is low, you have to understand the interest rate is low because I'm taking a short term loan, or am I taking a long term loan? Right? So if it's a long term loan, it adds up. But investment, if you're using it to really the market rally and you really want to be opportunistic. To my mind,

those are short term. So don't get locked in. So like I said, take a loan, lock in where there's a penalty. You make something on the side and you think that you have made money. Then when you want to pay off the loan, you realize that oops, there is a penalty, then it just negates the whole proposition that you have in mind. So I think it's very important to look at it. If I'm borrowing short term really, indeed, is it really short? The customers just need to understand what's

the outlay. Yeah, OK. I think that's a very good piece of advice there. Uh, I want to stay on this topic a little bit longer. Interest rates have come down, lots of people are starting to review their mortgages. Is it easy to get a refinance on all kinds of loans? I mean, what are the things that we need to look out for? I think if it comes to refinancing, your mortgage is the one that you can get it pretty easily. I mean, to be fair, mortgage is a long term loan, 25

to 30 years, right? It might even outlast some marriages. I'll save that for our next conversation. So yes, so refinancing is important. It goes according to interest market and also, yes, I think banks are very open to refinancing. It's after all, a secured loan. At the end of it, that mortgage is a secured loan. Uh, but I can't say that for unsecured loans, right? So in a way, you won't take it for more than 2 years. You will take a short term loan, maybe 8.

8 months is what you will go. So it's really in terms of banks, are they really helping the consumers because interest rate has dropped. Is the rate also dropping correspondingly? And I think to be fair, Singapore banks have been doing that. So the consumers know that they are not getting paid, but like I said, read the terms and conditions, right? If the headline rate sounds good, just read the terms and conditions. That's my advice. Now you talk.

About some people taking short term loans, right, because they want to take advantage of lower rates, for example, and some people want to do this in order to pay off certain expenses, maybe less important, less heavy expenses that may not be as big as a mortgage loan, for example, right? That's just one reason. Is there such a thing as a good time or a good occasion to take a loan. So I'm asking about the timing here. No, I don't, because to my mind loans, if you

think about unsecured, it still needs-based. It is a needs-based loan. So you have to have a need, you take a loan. It's no point taking a loan in anticipation of a need because once you take a loan, you're already paying interest. So that's why if you if you're in a situation like this, it's better to have a standby line. So don't think of it as a loan that you have drawn down, get a standby line. So so that if you want to draw it now in the next minute, you already have access to it

rather than to apply it when you need it. So I think maybe to answer your questions, always have a standby line that is already there available for you that you can draw down. Yes, I think that's a really sound advice for sure along with everything else that you've said, and I only wish I had this advice maybe 1015 years ago. But Jane, you know what, nonetheless, this has been informative. Thanks very much for coming down to the Money Talks podcast. Thank you.

Thank you for your time. Now listener, if you've got any comments or feedback or questions, even, you can always leave us a message. You know where to reach us. Money Talks is available on Apple Podcasts, Spotify as well as YouTube Music. Do leave us a rating. We look out for those sometimes. Credits to the team as well, Christina Robert, Tiffany Ang, Junaini Johari, Joanne Chan, Hanida Amin, Arjun Bala and Mohammad bin Jafar. I am Andre Heng

for the Money Talks podcast. We'll catch you at the next one.