Different types of loans serve different purposes. Choosing the wrong loan may cause you to pay a lot more than you need to, or unnecessarily bind you to long-term repayment obligations. Proper planning and careful management will help you avoid getting into a spiral of debt.
So how do you judge what's right for you? Here are a few tips and hints that may help you make informed choices about your personal finances when considering a loan:
- Purpose of the loan. Consider the purpose of the loan and explore whether the amount you're considering will be spent on something you really need or can afford. Can you save up money instead and pay for it quickly?
- Can you afford it? Are you spending beyond your means? Think carefully about your long-term plans and commitments and whether this is an affordable or feasible option for you. Ask yourself what happens if your lifestyle changes and you find yourself with less income or more expenses? If you're considering a 9 year loan for example, and you plan to get married or have children in a few years, will you be able to manage your debt and pay for rent, furniture, daily expenses, utility bills, school fees, and basic necessities? Or, are you planning to retire before the end of the loan tenor? If so, how will you cover your loan installments?
- Planning is key - Work out a budget, List your current and future commitments, such as loans, expenses/rent, and other necessities. If you have any doubts, consider other options or perhaps cut back on non-essential costs.
- Borrow only what you need. Remember, you're expected to repay your loans, plus interest. Even if you're eligible for more, avoid asking for a larger amount if you don't need it.
- Explore and evaluate your options: Research the alternatives before making a financial commitment. Ask about interest rates, credit life insurance, loan tenor, benefits…etc.
- Interest rates. Carefully assess how the loan is calculated and choose the loan that best suits your needs. Look for the best interest rate before you apply for a loan.
- Don't forget to ask about credit life insurance costs. All Banks require insurance on the amount borrowed. This would be a significant fee over the tenor of the loan. Always check for the best rates or ask if your Bank provides complimentary life insurance.
- Ask about other administrative or processing fees. Additional fees will normally be incurred when processing the loan application. This may be a fixed amount or a percentage of the loan amount.
- Understand your loan agreement: It is important to understand if the loan meets your specific needs. Familiarise yourself with the terms and conditions of the loan and seek independent advice if required. For some loans, you may incur additional fees when making early repayments; factor this into your overall costs.
- Loan tenor: While loans of longer tenor may mean smaller installments on a monthly basis, remember that you would be paying interest over a longer period. You will therefore end up paying a lot more than you would have for a loan of a shorter tenor.
- Don't be afraid to ask. Seek guidance and advice from your Relationship Manager/Customer Service Representative and ask for clarification if you don't understand.
- Share with us. If you are having problems with your finances, or suddenly face hardship, we would work with you to find suitable solutions.
- Your Credit profile is your reputation. Each time you borrow, you build a credit history. When you apply for credit, lenders consider your credit profile by checking your records with the Credit Bureau, which are maintained by the Central Bank of Oman. By making payments on time, you are not only acting as a responsible borrower but also establishing a good credit record. Bad credit history submitted by a bank to a Credit Bureau may impair your ability to borrow from any other bank.
At HSBC Bank Oman, we are on a journey to become the leading bank in Oman. In support of this, we are committed to lending responsibly and providing support at every stage of the relationship. Our approach to lending follows guidelines set by the Central Bank of Oman's regulations and HSBC Group's lending policies. We aim to inculcate a culture and business that is in line with the HSBC values. In simple words, we put customers at the heart of everything we do.
For more advice or information, please speak to our customer service representatives at any of our branches across the Sultanate.
