WEBVTT - A guide to taking on loans in Singapore

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<v Speaker 1>You're listening to a CNA podcast.

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<v Speaker 2>Welcome to CNA's Money Talks podcast. I'm Andrea Heng. Thank

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<v Speaker 2>you for joining me. Now, we tend to have a

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<v Speaker 2>lot of milestones in life, big events, right? Marriage, a

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<v Speaker 2>new home, further studies. You need funds for these, and

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<v Speaker 2>we may not always have the money for these occasions, right? Now,

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<v Speaker 2>we want to talk about loans because these are the

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<v Speaker 2>things that will help you get that money. And before

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<v Speaker 2>you take up a loan, there are quite a number

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<v Speaker 2>of things that we need to consider.

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<v Speaker 2>And it's overwhelming, especially if this is your first one.

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<v Speaker 2>So let's enlist the help of our Money Talk's guest today.

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<v Speaker 2>She is Jen Ong, head of retail at GXS Bank. Jen,

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<v Speaker 2>good to have you with us. Thank you for having us.

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<v Speaker 2>Very excited to talk about this because I've made many

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<v Speaker 2>mistakes when it comes to loans. So this is a

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<v Speaker 2>good one. We all have to take up loans, right?

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<v Speaker 2>So what are the key items in a person's life

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<v Speaker 2>cycle when a loan is a must have and a

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<v Speaker 2>nice to have? Good question. So when it comes to borrowing,

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<v Speaker 2>you started by saying that there are different milestones in

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<v Speaker 2>someone's life, and I think one of the biggest ones

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<v Speaker 2>that we have seen is renovation, right? If you talk

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<v Speaker 2>about marriage loan or wedding loan, yes, you see people

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<v Speaker 2>taking it, but most of the use cases that we

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<v Speaker 2>see are renovation loans because

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<v Speaker 2>Renovation can get big. You need someone to make sure

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<v Speaker 2>that you have enough money to see yourself through. Now

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<v Speaker 2>when we think about loans, there's always this taboo about

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<v Speaker 2>taking loans. Taking loans is sometimes you do need it.

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<v Speaker 2>So putting the taboo aside, now you think about loans,

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<v Speaker 2>you would think about interest rate. I think a lot

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<v Speaker 2>of consumers out there saying, um, which one gives me

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<v Speaker 2>the best interest rate and they make a decision based

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<v Speaker 2>on that. That is not wrong. But then you need

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<v Speaker 2>to go into the nitty gritty. You need to understand.

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<v Speaker 2>Is there any fees if I pay off early? Uh,

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<v Speaker 2>how is the interest calculated? See that's a big topic, right?

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<v Speaker 2>How is interest calculated? Everybody tell you interest is interest,

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<v Speaker 2>but no, if your interest is monthly rest or daily rest,

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<v Speaker 2>it becomes a different cost for the consumers. So what

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<v Speaker 2>are the TNCs? So if let's say I have more

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<v Speaker 2>money this time around, I want to pay off a

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<v Speaker 2>little bit earlier, will I be penalized? If you look

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<v Speaker 2>at what is happening in the market, there are fees

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<v Speaker 2>like this. Yes, so fees.

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<v Speaker 2>You will be penalized if you pay early. Then that

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<v Speaker 2>goes against the grain of taking a loan and being

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<v Speaker 2>careful because if you have money to pay off a loan,

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<v Speaker 2>you want to pay off a loan without penalty. So

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<v Speaker 2>that's why you have to check the TNCs, know what

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<v Speaker 2>you're getting into. OK, we will get into the nitty gritty,

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<v Speaker 2>but just want to tackle the philosophical side of things first.

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<v Speaker 2>How do I know what's a reasonable expense to take

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<v Speaker 2>up a loan for? So you mentioned things like wedding loans,

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<v Speaker 2>rental loans, these are the more.

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<v Speaker 2>ones. When do I know that taking a loan is

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<v Speaker 2>a good versus a bad idea? Well, so you think

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<v Speaker 2>about the opportunity cost then, right? So if let's say

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<v Speaker 2>I'll give you an example, broken kitchen sink, you need

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<v Speaker 2>to fix it. Now, are you saying that, oh, I

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<v Speaker 2>don't have the money, I don't have the means, therefore

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<v Speaker 2>I'm going to live with a broken sink? No. So

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<v Speaker 2>you have to take a loan because the other alternative

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<v Speaker 2>is just not possible. So that there are areas you

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<v Speaker 2>to think about when is a good time to take

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<v Speaker 2>a loan.

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<v Speaker 2>Like I said, taking a loan is on the surface

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<v Speaker 2>sounds like a taboo, but if you think about it,

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<v Speaker 2>housing loan.

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<v Speaker 2>Yeah, everybody takes a housing loan. It's almost necessary. So

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<v Speaker 2>the housing loan is there. Car loan, people take a

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<v Speaker 2>car loan. So these are all utilitarian needs that you

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<v Speaker 2>have and then you need to take a loan. So

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<v Speaker 2>to me, I've always tell people if you need to

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<v Speaker 2>take a loan, be careful what is the cost of

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<v Speaker 2>servicing the loan. That's where you need to remember. Taking

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<v Speaker 2>a loan is something that is is something that you

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<v Speaker 2>have to do, then make sure that you can afford it.

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<v Speaker 2>One of the biggest thing to think about when taking

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<v Speaker 2>a loan is the ability

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<v Speaker 2>to pay back. That's right, right? So I can take

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<v Speaker 2>a loan and don't pay back and then I'll be

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<v Speaker 2>in trouble. I can take a loan and stretch it

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<v Speaker 2>too short. I will not have the ability to pay

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<v Speaker 2>back because my disposable income cannot meet that monthly repayment.

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<v Speaker 2>So you have to calculate your income, you need to

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<v Speaker 2>calculate what is available after you put aside for all

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<v Speaker 2>the necessities, then check out what is a repayment capability.

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<v Speaker 2>If you want to pay off in 12 months, make

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<v Speaker 2>sure you can. If you

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<v Speaker 2>you may have to stretch it a little bit more

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<v Speaker 2>to 18 months, but then it makes your monthly servicing

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<v Speaker 2>a little bit more sustainable. Now, when I'm shopping around

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<v Speaker 2>for a loan, how do I make comparisons? What are

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<v Speaker 2>the top three things, say, that I need to compare

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<v Speaker 2>in order to decide what's the best kind of loan

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<v Speaker 2>that works for me? Yeah. So the first thing you

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<v Speaker 2>want to look at is the interest rate. Now, we

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<v Speaker 2>talk about interest rate, um, you need to know whether

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<v Speaker 2>It is like I mentioned, a monthly rest or a

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<v Speaker 2>daily rest. What's a rest? The way interest is calculated, right?

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<v Speaker 2>So if let's say when we talk about monthly rest

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<v Speaker 2>is let's say your outstanding amount is $10,000 right? And

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<v Speaker 2>I made an early repayment of $7000 so my calculation

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<v Speaker 2>should be based on the difference of $3000. But if

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<v Speaker 2>you're on a monthly rest, it doesn't happen. They would

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<v Speaker 2>just look at what is your previous month and interest

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<v Speaker 2>is calculated. So it's a bit different.

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<v Speaker 2>The other one will be fees, right? Yeah, so you

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<v Speaker 2>want to know is there a processing fee? So usually

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<v Speaker 2>you will hear very low interest, but then there's processing

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<v Speaker 2>fee and then you'll hear there's a penalty fee. So

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<v Speaker 2>those are the things that you as a consumer, you

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<v Speaker 2>need to take a look. I'm just curious, Jen, is

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<v Speaker 2>there a loan that has no penalty for paying early?

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<v Speaker 2>Because I've taken up a loan before and I had

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<v Speaker 2>the same mindset as everyone else. I want to pay

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<v Speaker 2>it off early so that it's not a burden on

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<v Speaker 2>my shoulders, not hanging around in my head all the time.

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<v Speaker 2>But then there's a penalty that you have to pay

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<v Speaker 2>because you're paying early. I don't understand that. Can you

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<v Speaker 2>explain this to me? I think it is the cost

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<v Speaker 2>of money. Money comes at a cost, whether you're a borrower,

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<v Speaker 2>whether you're a lender, right? I think there is a

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<v Speaker 2>penalty fee because that money is set aside for for

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<v Speaker 2>consumers to use it, so there is a timeline to

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<v Speaker 2>it that this person.

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<v Speaker 2>needs it for 12 months, so I can't use that

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<v Speaker 2>money for something else because I'm lending it to this person.

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<v Speaker 2>So in most financial, so there's this penalty, right? So,

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<v Speaker 2>so if you return it to me, what am I

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<v Speaker 2>going to do with it? So there's a penalty. Now

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<v Speaker 2>back to your question, is there a loan that has

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<v Speaker 2>no penalty fee? Yes. Oh, OK. Flexi loan has no

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<v Speaker 2>penalty fee. OK.

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<v Speaker 2>Why is that? That is because when we designed the product,

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<v Speaker 2>we took into account consumer's lifestyle. Now I am a

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<v Speaker 2>bank employee, but I'm a consumer myself. I have gone

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<v Speaker 2>through different stages where I needed a loan. So I've

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<v Speaker 2>been through that and I understand that now if we

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<v Speaker 2>really want to serve the consumers, then take away the

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<v Speaker 2>unnecessary stuff. But won't that come at a cost to

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<v Speaker 2>A vendor like GXS Bank, so that's a good question, right?

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<v Speaker 2>So we're not saying that we are doing our charity,

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<v Speaker 2>we are saying that we may earn less, but we

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<v Speaker 2>have customer loyalty. I will have to say that's quite

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<v Speaker 2>a big gamble. I will have to say it's a

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<v Speaker 2>big gamble. The thing is, not everyone can take up

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<v Speaker 2>a loan, right?

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<v Speaker 2>It depends on various, I suppose, factors on the applicants part.

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<v Speaker 2>I understand banks actually take a look at your credit

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<v Speaker 2>score and I know from personal experience that you don't

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<v Speaker 2>have credit, it's not necessarily a good thing. So why

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<v Speaker 2>does our credit score matter so much when applying for

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<v Speaker 2>a loan? Because that's the only way for organizations to

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<v Speaker 2>determine payment capabilities. It's very easy to lend money.

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<v Speaker 2>But you want to make sure that the person you

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<v Speaker 2>lend money to is able to pay you back, right?

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<v Speaker 2>It works both ways, right? It's good for the consumers.

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<v Speaker 2>I think fundamentally a lot of consumers out there.

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<v Speaker 2>Do not put a lot of thinking into credit bureau score.

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<v Speaker 2>They don't know that it is. It's only when you're

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<v Speaker 2>applying for a loan and then when they talk to

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<v Speaker 2>the officer, then you realize there's something called a credit

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<v Speaker 2>bureau score. So we want to educate consumers to say

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<v Speaker 2>that right now I mean we are young at 2025,

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<v Speaker 2>you go take a credit card, forget to pay a bill,

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<v Speaker 2>you would think nothing of it. But if you continue

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<v Speaker 2>to forget to pay a bill, 10 years later when

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<v Speaker 2>you want a housing loan, your credit score is pretty

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<v Speaker 2>ugly and that's where the challenge is, right?

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<v Speaker 2>Yeah. So for us, I think it's important for consumers

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<v Speaker 2>out there, it's important to cultivate good payment behavior. So

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<v Speaker 2>so so at GXS, if we give you a loan,

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<v Speaker 2>we will also nudge you to pay your loan and

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<v Speaker 2>we will tell you, hey, do not forget, hey, do

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<v Speaker 2>you know that if you don't do it correctly, you

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<v Speaker 2>may have to have a poor credit score 3 years

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<v Speaker 2>down the track. And that's I think what we also

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<v Speaker 2>tend to forget is the repercussions like you said, later on,

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<v Speaker 2>you may forget it now and you may think nothing

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<v Speaker 2>of it now and then when you pay it off,

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<v Speaker 2>it's fine. I've paid it off, whatever, but people often forget.

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<v Speaker 2>that there are long term repercussions to that. Thanks for

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<v Speaker 2>the reminder. Now, what do we need to think about

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<v Speaker 2>when we have to take on multiple loans at a time?

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<v Speaker 2>So I'm thinking a study loan at the same time

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<v Speaker 2>as a mortgage, and I've been through that before. I

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<v Speaker 2>had to pay off a mortgage while studying the renovation

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<v Speaker 2>loan as well. It was very painful. 3 bills in

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<v Speaker 2>a row. So what do we need to think about here?

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<v Speaker 2>I think the most important thing is the ability to

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<v Speaker 2>repay your loan on a monthly basis.

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<v Speaker 2>So calculate what is known as your debt servicing ratio. Yes,

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<v Speaker 2>just calculate it, right? If you earn $1 and if

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<v Speaker 2>you need $10 to pay off, do you have enough

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<v Speaker 2>money to eat and sleep and you know, buy your

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<v Speaker 2>groceries calculation you need to be able to sleep at night.

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<v Speaker 2>So I think that's where you have to think about

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<v Speaker 2>ability to pay. Now if you are really stuck, then

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<v Speaker 2>maybe prioritize. What is more important? I mean to my

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<v Speaker 2>my housing loan is important, student loan is important. Rena

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<v Speaker 2>maybe push it out.

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<v Speaker 2>6 months, but really think about your financial health before

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<v Speaker 2>you overleverage. So I think what you're trying to say

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<v Speaker 2>here is, think about it from a budgeting perspective, right?

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<v Speaker 2>Really sit down, draw your budget, see what you are

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<v Speaker 2>left with after all your regular expenses and look at

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<v Speaker 2>that final figure and say, hey, can I manage this

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<v Speaker 2>every month or not? OK, and there are solutions to

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<v Speaker 2>mitigate any of this if we feel like we can't

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<v Speaker 2>pay a certain loan by a certain time.

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<v Speaker 2>Yeah, so you're saying that I take it that you

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<v Speaker 2>are a person has already taken a loan and now

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<v Speaker 2>has a problem to say that, you know what, I

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<v Speaker 2>took a loan, I can't. Yeah, so there's always you

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<v Speaker 2>can always restructure your loan. Yes, you can always restructures

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<v Speaker 2>are open to that, right? OK, let's talk about interest rates.

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<v Speaker 2>Something that is on everyone's minds ever since the pandemic

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<v Speaker 2>and now it's a big deal because everyone's watching what's

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<v Speaker 2>happening in the US. We are also watching what's happening

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<v Speaker 2>in Singapore as well. Some people choose to max out

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<v Speaker 2>their loans because the interest is lower in time and

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<v Speaker 2>then they can use whatever cash extra that they have

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<v Speaker 2>to invest on other things which give them higher returns.

0:10:25.484 --> 0:10:28.924
<v Speaker 2>Is this necessarily advisable in your opinion?

0:10:29.539 --> 0:10:33.289
<v Speaker 2>It really depends on the returns that you expect to get, right?

0:10:33.380 --> 0:10:35.799
<v Speaker 2>Is it short term or long term? Now no matter

0:10:35.799 --> 0:10:38.159
<v Speaker 2>how you cut it, when you look at it alone

0:10:38.159 --> 0:10:40.239
<v Speaker 2>and say that the interest rate is low, you have

0:10:40.239 --> 0:10:42.210
<v Speaker 2>to understand the interest rate is low because I'm taking

0:10:42.210 --> 0:10:44.000
<v Speaker 2>a short term loan, or am I taking a long

0:10:44.000 --> 0:10:44.450
<v Speaker 2>term loan?

0:10:44.599 --> 0:10:47.358
<v Speaker 2>Right? So if it's a long term loan, it adds up.

0:10:47.750 --> 0:10:50.429
<v Speaker 2>But investment, if you're using it to really the market

0:10:50.429 --> 0:10:53.869
<v Speaker 2>rally and you really want to be opportunistic. To my mind,

0:10:53.909 --> 0:10:56.789
<v Speaker 2>those are short term. So don't get locked in. So

0:10:56.789 --> 0:10:58.909
<v Speaker 2>like I said, take a loan, lock in where there's

0:10:58.909 --> 0:10:59.590
<v Speaker 2>a penalty.

0:11:00.049 --> 0:11:02.210
<v Speaker 2>You make something on the side and you think that

0:11:02.210 --> 0:11:03.929
<v Speaker 2>you have made money. Then when you want to pay

0:11:03.929 --> 0:11:06.080
<v Speaker 2>off the loan, you realize that oops, there is a penalty,

0:11:06.289 --> 0:11:09.130
<v Speaker 2>then it just negates the whole proposition that you have

0:11:09.130 --> 0:11:11.689
<v Speaker 2>in mind. So I think it's very important to look

0:11:11.690 --> 0:11:14.210
<v Speaker 2>at it. If I'm borrowing short term really, indeed, is

0:11:14.210 --> 0:11:16.890
<v Speaker 2>it really short? The customers just need to understand what's

0:11:16.890 --> 0:11:19.409
<v Speaker 2>the outlay. Yeah, OK. I think that's a very good

0:11:19.409 --> 0:11:21.329
<v Speaker 2>piece of advice there. Uh, I want to stay on

0:11:21.330 --> 0:11:22.840
<v Speaker 2>this topic a little bit longer.

0:11:23.244 --> 0:11:25.824
<v Speaker 2>Interest rates have come down, lots of people are starting

0:11:25.825 --> 0:11:29.364
<v Speaker 2>to review their mortgages. Is it easy to get a

0:11:29.364 --> 0:11:32.233
<v Speaker 2>refinance on all kinds of loans? I mean, what are

0:11:32.234 --> 0:11:33.955
<v Speaker 2>the things that we need to look out for? I

0:11:33.955 --> 0:11:37.674
<v Speaker 2>think if it comes to refinancing, your mortgage is the

0:11:37.674 --> 0:11:40.025
<v Speaker 2>one that you can get it pretty easily. I mean,

0:11:40.155 --> 0:11:42.794
<v Speaker 2>to be fair, mortgage is a long term loan, 25

0:11:42.794 --> 0:11:46.434
<v Speaker 2>to 30 years, right? It might even outlast some marriages.

0:11:47.500 --> 0:11:50.880
<v Speaker 2>I'll save that for our next conversation. So yes, so

0:11:50.880 --> 0:11:55.159
<v Speaker 2>refinancing is important. It goes according to interest market and also, yes,

0:11:55.239 --> 0:11:58.599
<v Speaker 2>I think banks are very open to refinancing. It's after all,

0:11:58.609 --> 0:12:01.359
<v Speaker 2>a secured loan. At the end of it, that mortgage

0:12:01.359 --> 0:12:03.960
<v Speaker 2>is a secured loan. Uh, but I can't say that

0:12:03.960 --> 0:12:07.039
<v Speaker 2>for unsecured loans, right? So in a way, you won't

0:12:07.039 --> 0:12:09.440
<v Speaker 2>take it for more than 2 years. You will take

0:12:09.440 --> 0:12:10.880
<v Speaker 2>a short term loan, maybe 8.

0:12:10.969 --> 0:12:13.299
<v Speaker 2>8 months is what you will go. So it's really

0:12:13.469 --> 0:12:16.579
<v Speaker 2>in terms of banks, are they really helping the consumers

0:12:16.580 --> 0:12:20.599
<v Speaker 2>because interest rate has dropped. Is the rate also dropping correspondingly?

0:12:20.650 --> 0:12:22.789
<v Speaker 2>And I think to be fair, Singapore banks have been

0:12:22.789 --> 0:12:25.189
<v Speaker 2>doing that. So the consumers know that they are not

0:12:25.190 --> 0:12:29.059
<v Speaker 2>getting paid, but like I said, read the terms and conditions, right?

0:12:29.140 --> 0:12:31.789
<v Speaker 2>If the headline rate sounds good, just read the terms

0:12:31.789 --> 0:12:34.429
<v Speaker 2>and conditions. That's my advice. Now you talk.

0:12:34.549 --> 0:12:37.380
<v Speaker 2>About some people taking short term loans, right, because they

0:12:37.380 --> 0:12:39.939
<v Speaker 2>want to take advantage of lower rates, for example, and

0:12:39.940 --> 0:12:42.059
<v Speaker 2>some people want to do this in order to pay

0:12:42.059 --> 0:12:47.340
<v Speaker 2>off certain expenses, maybe less important, less heavy expenses that

0:12:47.340 --> 0:12:49.820
<v Speaker 2>may not be as big as a mortgage loan, for example, right?

0:12:49.900 --> 0:12:52.340
<v Speaker 2>That's just one reason. Is there such a thing as

0:12:52.340 --> 0:12:55.679
<v Speaker 2>a good time or a good occasion to take a loan.

0:12:55.710 --> 0:12:57.978
<v Speaker 2>So I'm asking about the timing here.

0:12:59.330 --> 0:13:01.729
<v Speaker 2>No, I don't, because to my mind loans, if you

0:13:01.729 --> 0:13:05.959
<v Speaker 2>think about unsecured, it still needs-based. It is a needs-based loan.

0:13:06.270 --> 0:13:07.979
<v Speaker 2>So you have to have a need, you take a loan.

0:13:08.130 --> 0:13:10.849
<v Speaker 2>It's no point taking a loan in anticipation of a

0:13:10.849 --> 0:13:13.599
<v Speaker 2>need because once you take a loan, you're already paying interest.

0:13:13.840 --> 0:13:16.200
<v Speaker 2>So that's why if you if you're in a situation

0:13:16.200 --> 0:13:19.409
<v Speaker 2>like this, it's better to have a standby line. So

0:13:19.409 --> 0:13:20.929
<v Speaker 2>don't think of it as a loan that you have

0:13:20.929 --> 0:13:23.049
<v Speaker 2>drawn down, get a standby line.

0:13:23.349 --> 0:13:24.809
<v Speaker 2>So so that if you want to draw it now

0:13:24.809 --> 0:13:27.010
<v Speaker 2>in the next minute, you already have access to it

0:13:27.010 --> 0:13:29.330
<v Speaker 2>rather than to apply it when you need it. So

0:13:29.330 --> 0:13:31.330
<v Speaker 2>I think maybe to answer your questions, always have a

0:13:31.330 --> 0:13:34.690
<v Speaker 2>standby line that is already there available for you that

0:13:34.690 --> 0:13:37.488
<v Speaker 2>you can draw down. Yes, I think that's a really

0:13:37.489 --> 0:13:39.719
<v Speaker 2>sound advice for sure along with everything else that you've said,

0:13:39.729 --> 0:13:43.169
<v Speaker 2>and I only wish I had this advice maybe 1015

0:13:43.169 --> 0:13:46.369
<v Speaker 2>years ago. But Jane, you know what, nonetheless, this has

0:13:46.369 --> 0:13:48.890
<v Speaker 2>been informative. Thanks very much for coming down to the

0:13:48.890 --> 0:13:50.010
<v Speaker 2>Money Talks podcast. Thank you.

0:13:50.219 --> 0:13:51.809
<v Speaker 2>Thank you for your time. Now listener, if you've got

0:13:51.809 --> 0:13:55.010
<v Speaker 2>any comments or feedback or questions, even, you can always

0:13:55.010 --> 0:13:57.059
<v Speaker 2>leave us a message. You know where to reach us.

0:13:57.250 --> 0:14:00.690
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0:14:00.690 --> 0:14:04.329
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0:14:04.330 --> 0:14:06.770
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0:14:06.859 --> 0:14:11.369
<v Speaker 2>Christina Robert, Tiffany Ang, Junaini Johari, Joanne Chan, Hanida Amin,

0:14:11.619 --> 0:14:14.739
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0:14:14.739 --> 0:14:16.489
<v Speaker 2>for the Money Talks podcast. We'll catch you at the

0:14:16.489 --> 0:14:16.890
<v Speaker 2>next one.