Be a Loan Boss

One thing they don’t teach you in school? How to pay for it. Here’s a cheat sheet on how to con­quer one of the trick­i­est parts of adult­ing: pay­ing off your debt.

CLEO (Singapore) - - CONTENTS -

We all know de­grees are ex­pen­sive, but did you know that Sin­ga­pore­ans pay one of the high­est uni­ver­sity tu­ition fees in the world? In fact, a study by the Econ­o­mist In­teligence Unit in 2015 re­vealed that a four-year de­gree costs more than half of a per­son’s yearly in­come. But if you need that de­gree, you need that de­gree, and that’s where stu­dent loans can come in.

Learn­ing how to man­age your debt is a vi­tal skill, so here’s a guide on how to be a loan boss and keep those in­vis­i­ble pay­ments un­der con­trol. We’re go­ing to fo­cus on ed­u­ca­tion loans here, but the prin­ci­ples are the same for other kinds loans.

Re­search

You prob­a­bly know this if you’ve al­ready fin­ished uni­ver­sity, but sev­eral banks of­fer loans. How­ever, no two loans (stu­dent or oth­er­wise) are cre­ated equal. “Be­fore com­mit­ting to any loan, per­form re­search across lenders in the in­dus­try,” says Citibank’s Head of Port­fo­lio Lend­ing, Cards and Per­sonal Loans, Pratik Bhat­tachar­jee.

First, check to see if the in­ter­est rate is flat or monthly. A flat in­ter­est rate is cal­cu­lated from the size of the ini­tial loan and is the same every month. A monthly rate is cal­cu­lated from what­ever the re­main­ing amount is that month. Gen­er­ally, a monthly rate will cost less over time be­cause as you pay off your debt, the in­ter­est added onto each pay­ment is re­duced.

Also, check for ad­di­tional fees. To make a profit on a low in­ter­est rate, banks may ap­ply a steep pro­cess­ing fee for the loan. An­other thing to take note of is a dis­burse­ment fee, which is a per­cent­age taken by the bank when a loan is first given out.

Set­ting a time­line

The next thing you should con­sider is the loan ten­ure, which ba­si­cally means how long you have to re­pay your loan and when re­pay­ment be­gins. Longer loan pe­ri­ods typ­i­cally have higher in­ter­est rates, so go for the short­est time frame you can af­ford to make reg­u­lar pay­ments on.

Dif­fer­ent banks have dif­fer­ent pay­ment time­lines. OCBC, for ex­am­ple, has three stu­dent loan op­tions: Stan­dard, Grad­u­ated, and Grad­u­ated Plus. With Stan­dard, you be­gin re­pay­ing

im­me­di­ately af­ter the loan is given out at an in­ter­est rate of 5.54 per­cent over five years. For Grad­u­ated, you pay only the in­ter­est un­til the end of your course; monthly in­stal­ments will only start af­ter you grad­u­ate. For Grad­u­ated Plus, you pay in­ter­est on the loan for up to one year af­ter the end of your course, and then pay monthly in­stal­ments from the sec­ond year on­wards. While Grad­u­ated in­ter­est rates are lower, keep in mind that you’re pay­ing in­ter­est over a longer pe­riod, so it’s not nec­es­sar­ily sav­ing you money.

It’s pay­back time

Now that you’re ready to start pay­ing off your loans, only one thing re­ally mat­ters: mak­ing your monthly pay­ments on time. Late fees are no joke and un­for­tu­nately, there are no short­cuts here. Late fees for ed­u­ca­tion loans start at $30 per pay­ment.

In gen­eral, pay­ing back a loan fast saves you money in the long run. But watch out for re­pay­ment fees, which are in­curred by try­ing to pay off a loan too quickly. Banks want to profit off in­ter­est, and if you pay a loan off faster than what was agreed, they lose that profit. Re­pay­ment fees dis­cour­age this, but if it ends up be­ing less than in­ter­est over time, it’s def­i­nitely the way to go. A re­pay­ment fee for an ed­u­ca­tion loan is gen­er­ally one per­cent of the un­paid amount.

The strug­gle is real

Pay­ing off loans can re­ally do your head in, so don’t be afraid to get an ex­pert opin­ion. “Seek pro­fes­sional ad­vice from your bank, fi­nan­cial plan­ner or or­gan­i­sa­tions such as Credit Coun­selling Sin­ga­pore,” says Pratik. Ad­di­tion­ally, as OCBC’s Head of Cards, Vin­cent Tan notes, “A con­sid­er­able num­ber of peo­ple are fac­ing fi­nan­cial dif­fi­cul­ties be­cause of fam­ily or med­i­cal cir­cum­stances.” To pre­vent this, he ad­vises “plan­ning ahead or hav­ing an in­sur­ance cov­er­age plan,” which can re­ally re­lieve the pres­sure.

Sim­plify, sim­plify

What you should do next if you have mul­ti­ple loans, is find a bank with a solid Debt Con­sol­i­da­tion Plan. These plans “[help] con­sumers bet­ter man­age their fi­nances by com­bin­ing all out­stand­ing bal­ances from all their credit cards and per­sonal loans across mul­ti­ple fi­nan­cial in­sti­tu­tions into one fixed monthly re­pay­ment,” says Vin­cent. The perks of this are the in­ter­est rate and sim­plic­ity: in­stead of pay­ing var­i­ous in­ter­est rates on debts across a spec­trum of banks, you pay one in­ter­est on one debt—much eas­ier to keep track of, too.

All paid off

Well, you did it: your loan’s been paid off, and that’s some­thing to be proud of. If you take out a loan again – be it per­sonal or for your first home – you’ll know how to man­age them like a (loan) boss. Con­grats!

A study by the Econ­o­mist In­teligence Unit re­vealed that a four-year de­gree costs more than half of a per­son’s yearly in­come.

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