Do you know what is a Pay Only Interest loan or POI in short? This type of loan is available in Singapore and it is one which allows a lot of room for you to maneuver especially if you are applying for a property loan.
Pay Only Interest Loans
What you want to get out of a POI is to pay as low as possible for the loan you are applying for. What is so good about this loan is that you will be able to pay for the interest only instead of the conventional method. In other words, you will not be paying for the interest and principal amount on a monthly basis.
Better cash management
Buying a property in Singapore can be quite a costly affair and you would want to save as much as you can. When you get into a POI, you get to maintain a low monthly installment. This is something that you might not enjoy in any other types of loans. In fact, other loans might require you to pay a standard amount in terms of monthly installments. This means that you have to fork out the same amount no matter what your cash flow is. So, should you or should you not enter into a POI?
Reasons you should
A POI is a great option if you are looking for a lower monthly payment loan. What you get to do out of this is that you can free up some additional cash and use them somewhere else instead of being tied down with the loan in the early days of your term.
Reasons you should not
On the other hand, the biggest downside to this is that you might be paying more in the long term. Take note that by entering into a POI, you are actually prolonging your term loan which means you will be entering into a long term commitment. Since you are only paying for interest, you are actually not reducing the balance which should be the main objective of anyone borrowing money.
How should you decide?
An interest loan calculator would be a good option to start with. This will enable you to determine how much is your monthly installment and how much you would end up in the end. While the POI is an interesting option for you if you want to pay the least possible, you must know that you might be paying more ultimately.
On the other hand, making small payments is something a lot of borrowers like because it means that they can do it for a longer period of time since the amount is a lot smaller. As such, it is one of the most sought after loan packages in Singapore. If you are the type of person who wants a better cash flow and more money to spend each month before your installments become too high, then this could well be your best choice.
What should the decision be?
Like any other types of loan that you might apply for, there must always be several factors that must be considered before you make the decision. What you want is the best possible results in the end. To begin with, you know that you will be entering into a middle to long term loan. Secondly, you must be aware of the consequences of getting into a long-term commitment like that. Thirdly, think about how much cash you can free up per month and then think about whether it is actually worth the risk.