Getting a personal loan in your 20s: What you need to know

Weigh the pros and cons of borrowing while you're still learning to adult.

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A good bit of your 20s is spent learning to take care of yourself in the real world. You might have taken on a full-time job, joined the gig economy, hustled your way through university — or some combination of the three.

A personal loan can help when you’re just starting to build a solid financial future. But don’t be too quick to sign on the dotted line.

Lendela Personal Loan

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Name Product Interest Rate From Minimum Loan Amount Maximum Loan Amount Loan Tenure Turnaround Time
DBS Personal Loan
3.88% 

EIR: 7.56%

S$500
Up to 10x your monthly salary
1 - 5 years
Instant approval
Apply today and you could get an interest rate as low as 3.88% p.a. (EIR 7.56% p.a), plus a 1% processing fee. Loans of up to 10x your salary may be available.
POSB Personal Loan
3.88% 

EIR: 7.56%

S$500
Up to 10x your monthly salary
1 - 5 years
Instant approval
Enjoy a fast approvals service and an interest rate starting at 3.88% p.a. (EIR 7.56% p.a), plus a 1% processing fee.
HSBC Personal Loan
3.7% 

EIR: 7%

S$5,000
S$200,000
Up to 7 years
1 minute approval in principle. "Next Day" approval available for loans up to S$100,000
Get S$108 cashback plus an S$88 processing fee waiver if you apply by 12 June 2020. T&Cs apply.
Standard Chartered CashOne Personal Loan
3.88% 

EIR: 7.67%

S$1,000
Up to 4x your monthly salary, subject to a cap of S$250,000
1 - 5 years
Next working/banking day. T&C's apply
Take advantage of 50% cashback on your first month’s loan instalment, resulting in a S$199 refund on your loan account. Offer ends 30 June 2020.
Citi Quick Cash Loan
4.55% 

EIR: 8.5%

S$1,000
S$100,000
Up to 5 years
1 hour loan approval. T&C's apply
Get cash starting at 4.55% p.a. (EIR 8.5% p.a.) on a 36-month loan tenure. The interest you pay will vary depending on factors such as your credit score.
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How 20-somethings can benefit from a personal loan

A personal loan can help you pay down debt and invest in yourself when you’re just starting out. The extra cash could remove barriers to an exciting career opportunity, returning to school and other life milestones.

Making a big move

You’ve landed a great job offer, but it’s all the way on the other side of the globe. Maybe you’ve fallen in love with someone who lives overseas, or just want to see a new part of the world.

When moving your life in a new direction across the ocean, a personal loan can help you cover the upfront costs of flights, shipping, deposits and more.

  • Tip: Apply for a loan while you’re employed. Some lenders will consider your application if you’ve recently started a job. But you’ll likely find it hard to qualify for a competitive —or any — rate if you’re unemployed.

Starting a business

You might have a successful side hustle you’re looking to expand or a killer idea you’re willing to personally invest in. While some lenders offer startup financing, a personal loan could be a competitive option if you have strong personal credit and enough income to cover personal costs while getting your new enterprise off the ground.

  • Tip: Find a venture debt financer. Some lenders offer special programs for entrepreneurs, while others require equity in your business which can protect your personal credit if things don’t go as planned.

Consolidating debt

If credit card debt is weighing you down, consider applying for a debt consolidation loan. Consolidation moves your existing debt into a term loan, ideally at more favourable rates. It can provide a path out of credit card debt and help you save over the long term if you’re extended a low EIR.

  • Tip: Watch for the processing fee. Many personal loan providers charge a processing fee equal to 1% to 3% of your loan amount, which many lenders subtract from your funds. If you see such a fee, ask how it works — you might need to take out a larger loan than you intended to pay off your debt in full.

Paying for expenses while in school

Most of the student loans offered in Singapore only cover course fees, so this means that if you need excess funds to pay for living costs, school supplies, a new laptop or any personal expense, you’d need to seek alternative funding. However, a personal loan should be a last resort as you might have trouble making the repayments if you’re not employed.

  • Tip: Look for a lender that accepts cosigners. Unless you’re employed full time while in school, you might not qualify for a personal loan on your own. Applying with a trusted cosigner can help you land more competitive rates than applying on your own.

Building credit

Your credit score matters more than you might think. Yes, you need good credit to be approved for a credit card or loan. And taking out a personal loan can help improve your credit with responsible, on-time payments.

  • Tip: Know how much you can afford to borrow. Taking out a loan you can’t afford can hurt your credit, because on-time payments make up a large part of your credit score. Ensure you calculate how much you can afford to borrow.

When to avoid taking out a loan

A personal loan may not be the best idea for all situations. Before signing a contract, look into alternatives that can help you meet your financial goals.

Recurring bills

In an emergency, a personal loan can help you cover the cost of monthly bills. But you could end up in more debt than you can handle if you continually rely on loans to cover your general living expenses. Consider making a budget to cut back on personal spending, crowdfunding for help or reaching out to your support systems — friends, family or even benefits programs — before you borrow.

Vacations

Traveling can be a life-changing experience. But taking out a loan might not be the best way to see the world in your 20s. If you’re bitten by the travel bug, consider work-away programs, travel deals from companies like Expedia or good old-fashioned saving.

Unnecessary big purchases

That $5,000 rug might tie the room together, but digging into debt for unnecessary items puts you at financial risk. That’s because you’re paying interest on an already expensive item, costing you more in the long run. Unless it’s something you absolutely need, consider saving up for it instead.

Watch out for high rates and fees

Not all 20-somethings have poor credit, but chances are good that you won’t qualify for the strong rates and generous terms you might get on a loan 10 years down the line.

A few reasons for less competitive loans:

  • You’ve had less time to build a credit history. The length of your credit history counts toward your credit score. Generally, the longer you’ve been paying off debt, the higher your score. It’s also a factor that some lenders consider when you take out a loan.
  • Your high debt-to-income ratio. If you have massive student loan payments compared to your salary, you could have trouble qualifying for a loan. Most lenders prefer a lower debt-to-income ratio.
  • You’re new to the job market. Many lenders require a minimum income and prefer applicants who are employed full time. While it’s possible to get a loan while self-employed or freelancing, it may not be easy to prove that your income is what you say it is. A higher income can typically get you larger loan amounts and more favourable rates and terms.

3 tips for managing your personal finances in your 20s

  1. Start saving now. Experts say you should have saved for retirement at least one year’s salary by the time you’re 30. But that’s not the only cost to save for — you never know when you might have an emergency expense.
  2. Pay attention to your credit. Tracking your score can help you build the credit you need to, say, buy a car or invest in a home. You can purchase a copy of your credit report from Credit Bureau Singapore at S$6.42 (inclusive of GST).
  3. Refinance your loans. By refinancing your loans, you’ll typically be offered a new loan package that comes with better rates and terms. Especially if you’ve paid off a debt, earn more or have a better credit score than when you first took out the loan.

Bottom line

A personal loan can help you lay down the groundwork for building a strong and happy future — like moving to a new country to start a dream job. But borrowing more than you can handle could seriously hurt your personal finances and limit your future options.

Learn more in our guide to personal loans to know how to weigh benefits and find a lender.

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