When you need a large sum of money right away, you have two options. Either you can take out a big loan, borrowing the entire amount you need from one money lender Singapore, or you can take multiple loans from different lenders until you have covered the amount you need.
You may be thinking of the latter option. But is it really the best choice? What are the benefits of smaller loans over big loans? Let’s find out.
What makes multiple loans better than one big loan?
Flexibility
Having more than one loan makes repayment more flexible. Instead of having one big repayment amount per month, you can split it into a number of smaller repayments. Each of these may also have different deadlines, so you do not have to pay a big amount at once.
Another advantage is you can negotiate repayments in case you experience financial difficulties. If you have one big loan, negotiation may be harder. Compare that to talking to a lender with whom you owe a smaller loan – because you borrowed only a small amount, they are more likely to adjust to your financial situation.
Better interest rates
With multiple loans from different lenders, you can choose those with the smallest interest rates. This way, you can save a good amount of money. Larger loans usually have higher interest rates, and finding a lender or bank with a favorable rate may be more challenging with large loans.
Helps improve your credit score
If lenders and banks can always count on you to pay on time and in full every month, it’s great news for your credit score. Having multiple loans and still being able to repay on time is a huge green flag. Your credit score will soar if you manage to pay off all these smaller loans on time.
But smaller loans have drawbacks, too. Think about these before you decide on taking out multiple loans.
What makes one big loan better than multiple loans?
Easier to manage
Having multiple loans means having more than one monthly repayment due date. Also, each loan may have a different repayment amount and interest rate. That’s a lot of numbers to handle. If you’re not diligent with your loans, you may end up with late payments, underpayment, or worse, missed payments. These will all bring down your credit score.
In contrast, one big loan is easier to manage. You only have to remember one monthly due date, one repayment amount, and a single interest rate.
Credit hungry status
Having multiple loans at one time may tag you as ‘credit hungry’ in the eyes of banks and lenders. This is a huge red flag, as they may see being credit hungry as a sign that you are not trustworthy with repaying your loans.
As a consequence, your credit score may decrease. Also, applying for loans in the future may be harder, and you may not get more favorable terms.
With only one big loan, you will not be tagged as credit hungry. This can improve your chances of being approved for future loans – whether big ones or small ones.
Better effect on credit score
Taking out one big loan then paying it off on time will significantly boost your credit score. This way, you can apply for even bigger loans in the future without much difficulty. You’ll also get approved more easily for smaller loans.
Conclusion
Deciding on multiple loans over one big loan has both benefits and drawbacks. Evaluate your current financial situation first, then decide which is best for you. Just remember that with multiple loans, you should be able to juggle different repayment due dates and amounts due.
Always strive to repay your loans on time and in full. This is the best way to keep a healthy credit score, as well as to avoid getting stuck in debt.
