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If you have steady employment, a good credit history, and little to no debts, a personal loan may be a good option for financing your wedding.
However, if you are planning to buy your first flat, taking out any loans can decrease your chances of getting a home loan. Doing so will lower your Total Debt Servicing Ratio (TDSR), a figure that measures your debt obligations against your income. Essentially, your debts (including your mortgage) must not be greater than 60% of your income, but getting a personal loan can affect this amount.
So unless you are willing to put off buying your first HDB flat until your debts have been cleared, you may want to rethink getting a personal loan to fund your wedding.
Whether or not you use a personal loan or your credit cards, you are taking on debt which must be repaid. One of the most important factor in debt is it?s interest rate. The higher the interest, the more you will have to pay per installment, or the longer you will take to pay off your loan.Credit card interest rates average about 25% per annum. In contrast, personal loans offer interest rates of around 5% to 8% per annum. With the same amount borrowed, a credit card will cost you much more in interest payments than a personal loan. This also means that a personal loan is likely to be a much more manageable form of debt.
Unlike credit cards, personal loans are designed to have fixed repayment periods, with regular installment payments throughout. Before applying for a personal loan for your wedding, always check that you are able to meet the installment payments. If you find the monthly installments too large for you to deal with, try borrowing over a longer period, which will lower your monthly payments.
If the cash gifts received from your families and friends happen to equal or exceed the personal loan you took for your wedding, you?ll have the option to start your marriage with little or no debt.
Paying off your wedding loan early is a good way lighten your financial obligations, but note that most personal loans charge a fee for early repayments. This is typically a percentage of the loan amount, or a fixed amount, whichever is higher.
If you do not wish to pay the early repayment fees, consider putting aside the loan amount in a separate bank account. Then, set up an automated payment instruction to meet the monthly installment payments of your loan. This way, you can automatically pay off your wedding loan without paying any extra fees.
Interest will be your biggest concern when signing up for a loan of any sort. The right personal loan for your wedding should have the lowest Effective Interest Rate, or EIR. The EIR serves as a more accurate reflection of the loan's annual costs. This includes not just the interest, but processing fees and other related costs.
Besides examining the EIR and other fees, check if there are fee waivers or welcome offers that will reduce the burden of your monthly repayments.
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