Speaker 1: You're listening to a CNA podcast.
Speaker 2: Welcome to CNA's Money Talks podcast. I'm Andrea Heng. Thank
Speaker 2: you for joining me. Now, we tend to have a
Speaker 2: lot of milestones in life, big events, right? Marriage, a
Speaker 2: new home, further studies. You need funds for these, and
Speaker 2: we may not always have the money for these occasions, right? Now,
Speaker 2: we want to talk about loans because these are the
Speaker 2: things that will help you get that money. And before
Speaker 2: you take up a loan, there are quite a number
Speaker 2: of things that we need to consider.
Speaker 2: And it's overwhelming, especially if this is your first one.
Speaker 2: So let's enlist the help of our Money Talk's guest today.
Speaker 2: She is Jen Ong, head of retail at GXS Bank. Jen,
Speaker 2: good to have you with us. Thank you for having us.
Speaker 2: Very excited to talk about this because I've made many
Speaker 2: mistakes when it comes to loans. So this is a
Speaker 2: good one. We all have to take up loans, right?
Speaker 2: So what are the key items in a person's life
Speaker 2: cycle when a loan is a must have and a
Speaker 2: nice to have? Good question. So when it comes to borrowing,
Speaker 2: you started by saying that there are different milestones in
Speaker 2: someone's life, and I think one of the biggest ones
Speaker 2: that we have seen is renovation, right? If you talk
Speaker 2: about marriage loan or wedding loan, yes, you see people
Speaker 2: taking it, but most of the use cases that we
Speaker 2: see are renovation loans because
Speaker 2: Renovation can get big. You need someone to make sure
Speaker 2: that you have enough money to see yourself through. Now
Speaker 2: when we think about loans, there's always this taboo about
Speaker 2: taking loans. Taking loans is sometimes you do need it.
Speaker 2: So putting the taboo aside, now you think about loans,
Speaker 2: you would think about interest rate. I think a lot
Speaker 2: of consumers out there saying, um, which one gives me
Speaker 2: the best interest rate and they make a decision based
Speaker 2: on that. That is not wrong. But then you need
Speaker 2: to go into the nitty gritty. You need to understand.
Speaker 2: Is there any fees if I pay off early? Uh,
Speaker 2: how is the interest calculated? See that's a big topic, right?
Speaker 2: How is interest calculated? Everybody tell you interest is interest,
Speaker 2: but no, if your interest is monthly rest or daily rest,
Speaker 2: it becomes a different cost for the consumers. So what
Speaker 2: are the TNCs? So if let's say I have more
Speaker 2: money this time around, I want to pay off a
Speaker 2: little bit earlier, will I be penalized? If you look
Speaker 2: at what is happening in the market, there are fees
Speaker 2: like this. Yes, so fees.
Speaker 2: You will be penalized if you pay early. Then that
Speaker 2: goes against the grain of taking a loan and being
Speaker 2: careful because if you have money to pay off a loan,
Speaker 2: you want to pay off a loan without penalty. So
Speaker 2: that's why you have to check the TNCs, know what
Speaker 2: you're getting into. OK, we will get into the nitty gritty,
Speaker 2: but just want to tackle the philosophical side of things first.
Speaker 2: How do I know what's a reasonable expense to take
Speaker 2: up a loan for? So you mentioned things like wedding loans,
Speaker 2: rental loans, these are the more.
Speaker 2: ones. When do I know that taking a loan is
Speaker 2: a good versus a bad idea? Well, so you think
Speaker 2: about the opportunity cost then, right? So if let's say
Speaker 2: I'll give you an example, broken kitchen sink, you need
Speaker 2: to fix it. Now, are you saying that, oh, I
Speaker 2: don't have the money, I don't have the means, therefore
Speaker 2: I'm going to live with a broken sink? No. So
Speaker 2: you have to take a loan because the other alternative
Speaker 2: is just not possible. So that there are areas you
Speaker 2: to think about when is a good time to take
Speaker 2: a loan.
Speaker 2: Like I said, taking a loan is on the surface
Speaker 2: sounds like a taboo, but if you think about it,
Speaker 2: housing loan.
Speaker 2: Yeah, everybody takes a housing loan. It's almost necessary. So
Speaker 2: the housing loan is there. Car loan, people take a
Speaker 2: car loan. So these are all utilitarian needs that you
Speaker 2: have and then you need to take a loan. So
Speaker 2: to me, I've always tell people if you need to
Speaker 2: take a loan, be careful what is the cost of
Speaker 2: servicing the loan. That's where you need to remember. Taking
Speaker 2: a loan is something that is is something that you
Speaker 2: have to do, then make sure that you can afford it.
Speaker 2: One of the biggest thing to think about when taking
Speaker 2: a loan is the ability
Speaker 2: to pay back. That's right, right? So I can take
Speaker 2: a loan and don't pay back and then I'll be
Speaker 2: in trouble. I can take a loan and stretch it
Speaker 2: too short. I will not have the ability to pay
Speaker 2: back because my disposable income cannot meet that monthly repayment.
Speaker 2: So you have to calculate your income, you need to
Speaker 2: calculate what is available after you put aside for all
Speaker 2: the necessities, then check out what is a repayment capability.
Speaker 2: If you want to pay off in 12 months, make
Speaker 2: sure you can. If you
Speaker 2: you may have to stretch it a little bit more
Speaker 2: to 18 months, but then it makes your monthly servicing
Speaker 2: a little bit more sustainable. Now, when I'm shopping around
Speaker 2: for a loan, how do I make comparisons? What are
Speaker 2: the top three things, say, that I need to compare
Speaker 2: in order to decide what's the best kind of loan
Speaker 2: that works for me? Yeah. So the first thing you
Speaker 2: want to look at is the interest rate. Now, we
Speaker 2: talk about interest rate, um, you need to know whether
Speaker 2: It is like I mentioned, a monthly rest or a
Speaker 2: daily rest. What's a rest? The way interest is calculated, right?
Speaker 2: So if let's say when we talk about monthly rest
Speaker 2: is let's say your outstanding amount is $10,000 right? And
Speaker 2: I made an early repayment of $7000 so my calculation
Speaker 2: should be based on the difference of $3000. But if
Speaker 2: you're on a monthly rest, it doesn't happen. They would
Speaker 2: just look at what is your previous month and interest
Speaker 2: is calculated. So it's a bit different.
Speaker 2: The other one will be fees, right? Yeah, so you
Speaker 2: want to know is there a processing fee? So usually
Speaker 2: you will hear very low interest, but then there's processing
Speaker 2: fee and then you'll hear there's a penalty fee. So
Speaker 2: those are the things that you as a consumer, you
Speaker 2: need to take a look. I'm just curious, Jen, is
Speaker 2: there a loan that has no penalty for paying early?
Speaker 2: Because I've taken up a loan before and I had
Speaker 2: the same mindset as everyone else. I want to pay
Speaker 2: it off early so that it's not a burden on
Speaker 2: my shoulders, not hanging around in my head all the time.
Speaker 2: But then there's a penalty that you have to pay
Speaker 2: because you're paying early. I don't understand that. Can you
Speaker 2: explain this to me? I think it is the cost
Speaker 2: of money. Money comes at a cost, whether you're a borrower,
Speaker 2: whether you're a lender, right? I think there is a
Speaker 2: penalty fee because that money is set aside for for
Speaker 2: consumers to use it, so there is a timeline to
Speaker 2: it that this person.
Speaker 2: needs it for 12 months, so I can't use that
Speaker 2: money for something else because I'm lending it to this person.
Speaker 2: So in most financial, so there's this penalty, right? So,
Speaker 2: so if you return it to me, what am I
Speaker 2: going to do with it? So there's a penalty. Now
Speaker 2: back to your question, is there a loan that has
Speaker 2: no penalty fee? Yes. Oh, OK. Flexi loan has no
Speaker 2: penalty fee. OK.
Speaker 2: Why is that? That is because when we designed the product,
Speaker 2: we took into account consumer's lifestyle. Now I am a
Speaker 2: bank employee, but I'm a consumer myself. I have gone
Speaker 2: through different stages where I needed a loan. So I've
Speaker 2: been through that and I understand that now if we
Speaker 2: really want to serve the consumers, then take away the
Speaker 2: unnecessary stuff. But won't that come at a cost to
Speaker 2: A vendor like GXS Bank, so that's a good question, right?
Speaker 2: So we're not saying that we are doing our charity,
Speaker 2: we are saying that we may earn less, but we
Speaker 2: have customer loyalty. I will have to say that's quite
Speaker 2: a big gamble. I will have to say it's a
Speaker 2: big gamble. The thing is, not everyone can take up
Speaker 2: a loan, right?
Speaker 2: It depends on various, I suppose, factors on the applicants part.
Speaker 2: I understand banks actually take a look at your credit
Speaker 2: score and I know from personal experience that you don't
Speaker 2: have credit, it's not necessarily a good thing. So why
Speaker 2: does our credit score matter so much when applying for
Speaker 2: a loan? Because that's the only way for organizations to
Speaker 2: determine payment capabilities. It's very easy to lend money.
Speaker 2: But you want to make sure that the person you
Speaker 2: lend money to is able to pay you back, right?
Speaker 2: It works both ways, right? It's good for the consumers.
Speaker 2: I think fundamentally a lot of consumers out there.
Speaker 2: Do not put a lot of thinking into credit bureau score.
Speaker 2: They don't know that it is. It's only when you're
Speaker 2: applying for a loan and then when they talk to
Speaker 2: the officer, then you realize there's something called a credit
Speaker 2: bureau score. So we want to educate consumers to say
Speaker 2: that right now I mean we are young at 2025,
Speaker 2: you go take a credit card, forget to pay a bill,
Speaker 2: you would think nothing of it. But if you continue
Speaker 2: to forget to pay a bill, 10 years later when
Speaker 2: you want a housing loan, your credit score is pretty
Speaker 2: ugly and that's where the challenge is, right?
Speaker 2: Yeah. So for us, I think it's important for consumers
Speaker 2: out there, it's important to cultivate good payment behavior. So
Speaker 2: so so at GXS, if we give you a loan,
Speaker 2: we will also nudge you to pay your loan and
Speaker 2: we will tell you, hey, do not forget, hey, do
Speaker 2: you know that if you don't do it correctly, you
Speaker 2: may have to have a poor credit score 3 years
Speaker 2: down the track. And that's I think what we also
Speaker 2: tend to forget is the repercussions like you said, later on,
Speaker 2: you may forget it now and you may think nothing
Speaker 2: of it now and then when you pay it off,
Speaker 2: it's fine. I've paid it off, whatever, but people often forget.
Speaker 2: that there are long term repercussions to that. Thanks for
Speaker 2: the reminder. Now, what do we need to think about
Speaker 2: when we have to take on multiple loans at a time?
Speaker 2: So I'm thinking a study loan at the same time
Speaker 2: as a mortgage, and I've been through that before. I
Speaker 2: had to pay off a mortgage while studying the renovation
Speaker 2: loan as well. It was very painful. 3 bills in
Speaker 2: a row. So what do we need to think about here?
Speaker 2: I think the most important thing is the ability to
Speaker 2: repay your loan on a monthly basis.
Speaker 2: So calculate what is known as your debt servicing ratio. Yes,
Speaker 2: just calculate it, right? If you earn $1 and if
Speaker 2: you need $10 to pay off, do you have enough
Speaker 2: money to eat and sleep and you know, buy your
Speaker 2: groceries calculation you need to be able to sleep at night.
Speaker 2: So I think that's where you have to think about
Speaker 2: ability to pay. Now if you are really stuck, then
Speaker 2: maybe prioritize. What is more important? I mean to my
Speaker 2: my housing loan is important, student loan is important. Rena
Speaker 2: maybe push it out.
Speaker 2: 6 months, but really think about your financial health before
Speaker 2: you overleverage. So I think what you're trying to say
Speaker 2: here is, think about it from a budgeting perspective, right?
Speaker 2: Really sit down, draw your budget, see what you are
Speaker 2: left with after all your regular expenses and look at
Speaker 2: that final figure and say, hey, can I manage this
Speaker 2: every month or not? OK, and there are solutions to
Speaker 2: mitigate any of this if we feel like we can't
Speaker 2: pay a certain loan by a certain time.
Speaker 2: Yeah, so you're saying that I take it that you
Speaker 2: are a person has already taken a loan and now
Speaker 2: has a problem to say that, you know what, I
Speaker 2: took a loan, I can't. Yeah, so there's always you
Speaker 2: can always restructure your loan. Yes, you can always restructures
Speaker 2: are open to that, right? OK, let's talk about interest rates.
Speaker 2: Something that is on everyone's minds ever since the pandemic
Speaker 2: and now it's a big deal because everyone's watching what's
Speaker 2: happening in the US. We are also watching what's happening
Speaker 2: in Singapore as well. Some people choose to max out
Speaker 2: their loans because the interest is lower in time and
Speaker 2: then they can use whatever cash extra that they have
Speaker 2: to invest on other things which give them higher returns.
Speaker 2: Is this necessarily advisable in your opinion?
Speaker 2: It really depends on the returns that you expect to get, right?
Speaker 2: Is it short term or long term? Now no matter
Speaker 2: how you cut it, when you look at it alone
Speaker 2: and say that the interest rate is low, you have
Speaker 2: to understand the interest rate is low because I'm taking
Speaker 2: a short term loan, or am I taking a long
Speaker 2: term loan?
Speaker 2: Right? So if it's a long term loan, it adds up.
Speaker 2: But investment, if you're using it to really the market
Speaker 2: rally and you really want to be opportunistic. To my mind,
Speaker 2: those are short term. So don't get locked in. So
Speaker 2: like I said, take a loan, lock in where there's
Speaker 2: a penalty.
Speaker 2: You make something on the side and you think that
Speaker 2: you have made money. Then when you want to pay
Speaker 2: off the loan, you realize that oops, there is a penalty,
Speaker 2: then it just negates the whole proposition that you have
Speaker 2: in mind. So I think it's very important to look
Speaker 2: at it. If I'm borrowing short term really, indeed, is
Speaker 2: it really short? The customers just need to understand what's
Speaker 2: the outlay. Yeah, OK. I think that's a very good
Speaker 2: piece of advice there. Uh, I want to stay on
Speaker 2: this topic a little bit longer.
Speaker 2: Interest rates have come down, lots of people are starting
Speaker 2: to review their mortgages. Is it easy to get a
Speaker 2: refinance on all kinds of loans? I mean, what are
Speaker 2: the things that we need to look out for? I
Speaker 2: think if it comes to refinancing, your mortgage is the
Speaker 2: one that you can get it pretty easily. I mean,
Speaker 2: to be fair, mortgage is a long term loan, 25
Speaker 2: to 30 years, right? It might even outlast some marriages.
Speaker 2: I'll save that for our next conversation. So yes, so
Speaker 2: refinancing is important. It goes according to interest market and also, yes,
Speaker 2: I think banks are very open to refinancing. It's after all,
Speaker 2: a secured loan. At the end of it, that mortgage
Speaker 2: is a secured loan. Uh, but I can't say that
Speaker 2: for unsecured loans, right? So in a way, you won't
Speaker 2: take it for more than 2 years. You will take
Speaker 2: a short term loan, maybe 8.
Speaker 2: 8 months is what you will go. So it's really
Speaker 2: in terms of banks, are they really helping the consumers
Speaker 2: because interest rate has dropped. Is the rate also dropping correspondingly?
Speaker 2: And I think to be fair, Singapore banks have been
Speaker 2: doing that. So the consumers know that they are not
Speaker 2: getting paid, but like I said, read the terms and conditions, right?
Speaker 2: If the headline rate sounds good, just read the terms
Speaker 2: and conditions. That's my advice. Now you talk.
Speaker 2: About some people taking short term loans, right, because they
Speaker 2: want to take advantage of lower rates, for example, and
Speaker 2: some people want to do this in order to pay
Speaker 2: off certain expenses, maybe less important, less heavy expenses that
Speaker 2: may not be as big as a mortgage loan, for example, right?
Speaker 2: That's just one reason. Is there such a thing as
Speaker 2: a good time or a good occasion to take a loan.
Speaker 2: So I'm asking about the timing here.
Speaker 2: No, I don't, because to my mind loans, if you
Speaker 2: think about unsecured, it still needs-based. It is a needs-based loan.
Speaker 2: So you have to have a need, you take a loan.
Speaker 2: It's no point taking a loan in anticipation of a
Speaker 2: need because once you take a loan, you're already paying interest.
Speaker 2: So that's why if you if you're in a situation
Speaker 2: like this, it's better to have a standby line. So
Speaker 2: don't think of it as a loan that you have
Speaker 2: drawn down, get a standby line.
Speaker 2: So so that if you want to draw it now
Speaker 2: in the next minute, you already have access to it
Speaker 2: rather than to apply it when you need it. So
Speaker 2: I think maybe to answer your questions, always have a
Speaker 2: standby line that is already there available for you that
Speaker 2: you can draw down. Yes, I think that's a really
Speaker 2: sound advice for sure along with everything else that you've said,
Speaker 2: and I only wish I had this advice maybe 1015
Speaker 2: years ago. But Jane, you know what, nonetheless, this has
Speaker 2: been informative. Thanks very much for coming down to the
Speaker 2: Money Talks podcast. Thank you.
Speaker 2: Thank you for your time. Now listener, if you've got
Speaker 2: any comments or feedback or questions, even, you can always
Speaker 2: leave us a message. You know where to reach us.
Speaker 2: Money Talks is available on Apple Podcasts, Spotify as well
Speaker 2: as YouTube Music. Do leave us a rating. We look
Speaker 2: out for those sometimes. Credits to the team as well,
Speaker 2: Christina Robert, Tiffany Ang, Junaini Johari, Joanne Chan, Hanida Amin,
Speaker 2: Arjun Bala and Mohammad bin Jafar. I am Andre Heng
Speaker 2: for the Money Talks podcast. We'll catch you at the
Speaker 2: next one.