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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_0.wav | How is the interest calculated?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_1.wav | Welcome to CNA's Money Talks Podcast.
I'm Andrea Heng.
Thank you for joining me.
Now, we tend to have a lot of milestones in life.
Big events, right?
Marriage, a new home.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_2.wav | You need funds for these and we may not always have the money for these occasions, right?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_3.wav | Now, we want to talk about loans because these are the things that will help you get that money.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_4.wav | And before you take up a loan, there are quite a number of things that we need to consider.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_5.wav | And it's overwhelming, especially if this is your first one.
So let's enlist the help of our Money Talks guest today.
She is Jen Ong, Head of Retail.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_6.wav | at GXS Bank. Jen, good to have you with us. Thank you for having us. We all have to
take up loans right?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_7.wav | So what are the key items in a person's life cycle when a loan is a must have and a nice to have?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_8.wav | You started by saying that there are different milestones in someone's life.
And I think one of the biggest one that we have seen is renovation, right?
If you talk about marriage.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_9.wav | loan a wedding loan yes you see people taking it but most of the use cases that
we see are renovation loans because renovation can get big now when we
think about loans there's always this
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_10.wav | taboo about taking loans yeah taking loans is sometimes you do need it so
putting the taboo aside now you think about loans you would think about
interest rate
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_11.wav | I think a lot of consumers out there say, which one gives me the best interest rate?
And they make a decision based on that.
That is not wrong.
But then you need to go into the nitty gritty.
You need to understand is...
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_12.wav | uh how is the interest calculated see that that's a big topic right how is interest calculated
everybody tell you interest is interest but no if your interest is monthly rest or
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_13.wav | daily rest, it becomes a different cost for the consumers. So what are the TNCs? So if
let's say I have more money this time around, I want to pay off a little bit earlier, will
I be
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_14.wav | penalized ah if you look at what is happening in the market there are fees
like this yes so so fees that you will be penalized if you pay early
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_15.wav | then that goes against the grain of taking a loan and being careful because if you have money to pay off a loan,
you want to pay off a loan without penalty. So that's why you have to check the TNCs, know what you're getting into.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_16.wav | And we will get into the nitty gritty, but just want to tackle the philosophical side of things first.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_17.wav | How do I know what's a reasonable expense to take up a loan for?
So you mentioned things like wedding loans, reno loans.
These are the more common ones.
When do I know that?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_18.wav | You think about the opportunity cost then, right?
I'll give you an example, broken kitchen sink.
You need to fix it.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_19.wav | Now, are you saying that, Oh, I don't have the money.
I don't have the means.
Therefore I'm going to live with the broken thing.
No.
So you have to take a loan because the other alternative is just not.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_20.wav | possible so that there are areas you to think about when is a good time to take a loan like
i said taking a loan is um on the surface sounds like a taboo but if you think about it
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_21.wav | Housing loan.
Yeah.
Everybody takes a housing loan.
It's almost necessary.
Correct.
So housing loan is there.
Car loan.
People take a car loan.
So these are all utilitarian.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_22.wav | Needs that you have and then you need to take a loan. So to me, I have always tell people if you need to take a loan
Be careful. What is the cost of servicing the loan, right? That's where you need to remember
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_23.wav | Taking a loan is something that you have to do, then make sure that you can afford it.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_24.wav | one of the biggest thing to think about when taking a loan is the ability to pay
back. That's right. Right. So I can take a loan and don't pay back and I'll be in
trouble. Oh yes. Now I can take a loan and stretch it.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_25.wav | I will not have the ability to pay back because my disposable income
cannot meet that monthly repayment. So you have to calculate
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_26.wav | your income you need to calculate what is available after your you put aside for all the necessities
then check out what is a repayment capability okay if you want to
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_27.wav | pay off in 12 months, make sure you can. If you can't, you may have to stretch it a little bit more to 18 months.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_28.wav | Now, when I'm shopping around for a loan, how do I make comparisons?
What are the top three things, say, that I need to compare in order to decide what's the best?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_29.wav | kind of loan that works for me.
Yeah.
So the first thing you want to look at is the interest rate.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_30.wav | Now, when we talk about interest rate, you need to know whether it is, like I mentioned, a monthly res or a daily res.
What's a res?
The way interest is calculated.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_31.wav | right right so if let's say when we talk about monthly rest is let's say your
outstanding amount is ten thousand dollars right right and I made an early
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_32.wav | payment of 7,000 so my calculation should be based on the difference of 3,000
sure but if you're on a monthly rest it doesn't happen they will just look at
what is your end month what is it
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_33.wav | previous end month and interest is calculated.
So it's a bit different.
The other one would be fees.
Is there a processing fee?
You will hear very low interest, but then there's
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_34.wav | So those are the things that you, as a consumer, you need to take a look.
Is there a loan that has no penalty for paying early?
Because I've taken up a loan before.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_35.wav | And I, you know, I had the same mindset as everyone else.
I want to pay it off early so that it's not a burden on my shoulders, not, you know, hanging around in my head all the time.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_36.wav | But then there's a penalty that you have to pay because you're paying early.
I don't understand that.
Can you explain this to me?
Money comes at a
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_37.wav | costs whether you're a borrower whether you're a lender right now I think there
is a penalty fee because that money is set aside for you for consumers to use
it so there is a timeline
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_38.wav | it that this person for example needs it for 12 months so so i can't use that money for something
else because i'm lending it to this person right so so in most financial
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_39.wav | in budget so there's this penalty right so so if you return it to me what am i going to do with it
so there's a penalty now back to your question is there a loan that has
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_40.wav | no penalty fee. Yes. GXS Plexylon has no penalty fee. Why is that? That is because when we designed the product, we took
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_41.wav | consumer's lifestyle. I am a consumer myself. I have gone through different stages where I needed a loan. So I've been through that and I understand
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_42.wav | that now if we really want to serve the consumers then take away the unnecessary stuff but won't
that come at a cost too?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_43.wav | a vendor like gxs bank yeah so that's a good question right so we're not saying that we are
doing our charity we're saying that we may earn less but we have customer loyalty i will have
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_44.wav | say that's quite a big gamble yeah i will have to say it's a big gamble um the thing is not everyone
can take up a loan right uh it depends on various um
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_45.wav | I suppose, factors on the applicant's part.
I understand banks actually take a look at your credit score.
And I know from personal experience that you don't have credit.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_46.wav | it's not necessarily a good thing.
Yeah.
So why does our credit score matter so much when applying for a loan?
Because that's the only way for organisations to
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_47.wav | determine payment capabilities. It's very easy to lend money.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_48.wav | but you want to make sure that the person you lend money to is able to pay you back.
Right.
It works both ways, right? It's good for the consumers.
I think fundamentally, a lot of consumers out there,
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_49.wav | do not put a lot of thinking into credit bureau score they don't know that it is then yeah it's
only when you're applying for a loan and then when they talk
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_50.wav | the officer then we realize that something called a credit bureau score so we want to educate
consumers to say that right now i mean we are young at 20 25 you know you you go
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_51.wav | take a credit card, forget to pay a bill,
you would think nothing of it.
But if you continue to forget to pay a bill,
10 years later, when you want a housing loan,
your credit score is...
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_52.wav | pretty ugly and that's where the challenge is right so for us i think it's important consumers
out there it's important to cultivate good payment behavior yes so so so at GXS
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_53.wav | Do not forget, hey, do you know that if you don't do it correctly, you may have to have a poor credit score three years down the track.
What we also tend to forget is the repercussions, like you said.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_54.wav | later on you may forget it now and you may think nothing of it now and then
when you pay it off it's fine i've paid it off whatever but people often forget that
there are long-term
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_55.wav | Correct.
Correct.
Now, what do we need to think about when we have to take on multiple loans at a time?
So, I'm thinking a study loan.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_56.wav | at the same time as a mortgage.
And I've been through that before.
I had to pay off a mortgage while studying.
The renovation loan as well, that was very painful.
Three bills in a row.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_57.wav | the ability to repay your loan on a monthly basis right so calculate what is known as your
debt servicing ratio yes just calculate it right if you earn
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_58.wav | dollar and if you need X dollar to pay off do you have enough money to eat and
sleep and you know buy your groceries
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_59.wav | Circulation is very important.
You need to be able to sleep at night.
Correct.
So I think that's where you have to think about ability to pay.
Now, if you are really stuck, then maybe prioritize.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_60.wav | What is more important?
I mean, to my mind, housing loan is important, student loan is important, reno, maybe push
it out for six months.
But really think about your financial health before you overlive it.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_61.wav | So I think what you're trying to say here is think about it from a budgeting perspective, right?
Really sit down, draw out your budget, see what you are left with.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_62.wav | all your regular expenses and look at that final figure and say hey can I
manage this every month or not yes okay and there are solutions to mitigate
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_63.wav | any of this if we feel like we can't pay a certain loan by a certain time.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_64.wav | yeah so so you're saying that i take it that you are a person has already taken a loan yeah and
now has a problem to say that you know what i took a loan i can't correct yeah so so there's always
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_65.wav | always restructure your loan yes you can always restructure and banks are pretty open to that
right yes okay uh let's talk about interest rate something that is on everyone's minds uh ever since
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_66.wav | pandemic and now it's a big deal because everyone's watching what's happening in the U.S.
We are also watching what's happening in Singapore as well.
Some people choose to max
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_67.wav | out their loans because the interest is lower time and then they can use
whatever cash extra that they have to invest on other things which
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_68.wav | Is this necessarily advisable in your opinion?
It really depends on the returns that you expect to get.
Okay.
Right? Is it short term or long term?
Now, no matter how you...
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_69.wav | When you look at a loan and say that the interest rate is low,
you have to understand the interest rate is low
because I'm taking a short-term loan
or am I taking a long-term loan, right?
So if it's a long-term loan, you're at
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_70.wav | but investment if you're using it to really the market rally and you really want to be opportunistic
yes to my mind those are short term okay so don't get locked in so like i said take
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_71.wav | you make something on the side and you think that you have made money then when you want to pay off
the loan you realize that oops there is a penalty then it just negates the whole proposition that
you have
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_72.wav | in mind so i think it's very important to look at it if i'm borrowing short term really indeed
is it really short yeah the customers just need to understand what's the outlay
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_73.wav | yeah okay I think that's a very good piece of advice there I want to stay on
this topic a little bit longer interest rates have come down lots of people are
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_74.wav | to review their mortgages is it easy to get a refinance on all kinds of loans i mean what are
the things that we need to look out for i think if it comes
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_75.wav | To refinancing, your mortgage is the one that you can get it pretty easily.
Okay.
I mean, to be fair, mortgage is a long-term loan, 25 to 30 years, right?
It might.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_76.wav | And it might even outlast some marriages.
I'll save that for our next conversation.
So yes, refinancing is important.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_77.wav | It goes according to interest market and all.
So yes, I think banks are very open to refinancing.
It's after all a secured loan.
Yes.
At the end of it, that mortgage...
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_78.wav | is a secured loan but I can't say that for unsecured loans right so in a way you won't
take it for more than two years you will take
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_79.wav | short-term loan maybe 18 months is what you will go in terms of banks are they
really you know helping the consumers because interest interest rate is has
dropped
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_80.wav | is the rate also dropping correspondingly and i think to be fair singapore banks have been doing
that yeah so the consumers know that they are they they are not getting you know played but like i
said
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_81.wav | read the terms and conditions, right?
If the headline rate sounds good,
just read the terms and conditions.
That's my advice.
Okay.
You talked about some people taking short-term loans, right?
Because
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_82.wav | They want to take advantage of lower rates, for example.
And some people want to do this in order to pay off certain expenses, maybe.
Yes.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_83.wav | less important, less heavy expenses that may not be as big as a mortgage loan,
for example, right? That's just one reason.
Is there such a thing as a good time?
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_84.wav | No, I don't. Because to my mind, loans, if you think about unsecured, it's still needs-based.
It is a needs-based loan. So you have to have a need, you take a loan.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_85.wav | It's no point taking a loan in anticipation of a need, because once you take a loan,
you're already paying interest.
If you are in a situation like this, it's better to have a standby line.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_86.wav | So don't think of it as a loan that you have drawn down.
Get a standby line.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_87.wav | So that if you want to draw it now, in the next minute, you already have access to it rather than to apply it when you need it.
So I think maybe to answer your questions, always have a standby line.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_88.wav | that is already there available for you that you can draw down.
Yes.
I think that's really sound advice for sure along with everything else that you said
and I only wish I had this advice.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_89.wav | maybe 10, 15 years ago, but Jen, you know what?
Nonetheless, this has been informative.
Thanks very much for coming down to the Money Talks podcast.
Thank you. Thank you for your time.
Now, listener, if you've got any...
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_90.wav | comments or feedback or questions even, you can always leave us a message.
You know where to reach us.
Money Talks is available on Apple Podcasts, Spotify, as well as YouTube.
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_91.wav | to music do leave us a rating we look out for those sometimes credits to the
team as well Christina Robert Tiffany on do 90 Johari Joanne Chan
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audio_chunks/XTSexe4zuN0/XTSexe4zuN0_92.wav | Hanida Amin, Arjun Bala and Mohammed bin Jafar.
I am Andrea Heng for the Money Talks Podcast.
We'll catch you at the next time.
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