Singapore has one of the most developed financial institutions in Asia. Banks and authorised money dealers to offer a broad range of banking services and solutions including personal loans. Personal loans are meant to help you meet your financial needs when you need it.
The interest rates in Singapore are quite attractive and you as a customer you can enjoy a flexible loan repayment plan before you can clear off the borrowed money from either the bank or legal money lender.
In Singapore, it is not only the banks and other financial institutions that offer personal loans to its citizens; there are quite a number of both authorised and non-authorized money lenders who give personal loans.
In this unpredictable economy, today you might be on your feet, and the next the ground beneath you breaks, and you are unstable financially. If you are like the majority of the Singaporeans, you do not have thousands of ready money tucked back for these eventualities, you are left with few options. It is at this point that a personal loan comes in handy.
There are different reasons as to why you might want to take a personal loan such as:
- House repair
- Medical emergency
- Car Repair
- Restocking your business
Different Types Of Personal Loans In Singapore
- Term loansThese are offered by banks. Once you take this loan, you are supposed to pay it back with interest within an agreed period.
- Loans against credit cardsIn Singapore, there are many credit card issuers. If you are a customer of these issuers, they will offer instant cash against your credit card.
- Personal line of creditThis is an arrangement whereby your bank will give you a personal line of credit whereby on a monthly basis you will be able to access some money to meet your individual needs.
- Overdraft protectionMany big banks in Singapore, offer overdraft protection facility according to your Savings in which you can withdraw more money than what is available in your bank account.
- Personal LoansThese are usually offered by authorised moneylenders, with no mortgages necessary. The procedures and process are made simple and in fact, you can get a loan instantly within minutes!
Applied Versus Effective Interest Rates
An applied interest rate (AIR) is the interest rate that is advertised by the financial institution which is usually between 7 and 15%. The effective interest rate (EIR) on the other hand is the real cost of taking that personal loan which might include a flat rate interest charged on the amount you borrow or the rate that is charged on a reducing balance of the loan as you continue to pay.
The frequency in which you will repay the loan, and some instalments that you pay will affect the EIR. If you take a one-year term loan, for example, your EIR will be higher if you will be paying monthly instalments than if you will pay a lump sum at once. Hence, it will be advisable to consider the EIR rates when taking a personal loan.
Difference Between Term And Revolving Loans
A term loan is a kind of investment that you will make for a specified time either 1 or 3 or 5 years, for which the bank will require you to pay regular, fixed monthly instalments for a particular period. Each instalment you pay under this plan is inclusive of both principal and interest payment. A term loan is less flexible as compared to a revolving loan regarding duration and instalments and generally, the interest charged is cheaper.
A revolving loan, on the other hand, is like a bank overdraft or a line of credit. Under this arrangement, you the bank allows you to withdraw any amount to a particular maximum limit, and you only pay interest as long as you draw the money. After you have cleared the debt, you are allowed to withdraw more money again.
The interest rates on a revolving loan are higher than the term loan.
Debt To Income Ratio
When the bank or an authorised moneylender is determining the interest rate for your personal loan, your income to debt ratio will be used to calculate. This formula is used to calculate how much you can be able to pay monthly. Once they have determined how much you can be able to pay, then they can lend you the amount that you need.
Another factor that will determine your interest rate is the amount of money that you will borrow. However, if you will take a long-term loan, your rates are likely to be lower although you will end up paying more for the loan as compared to when you could have taken a short term loan.
On the same note, if you borrow more money from the bank or an authorised moneylender, you are likely to pay more interest rate as compared to if you had taken a small amount of money. This is because the banks use the amount borrowed to calculate the interest to be charged.
Hence, when you are taking the loan, you should consider the whole package. As it usually comes with other strings attached such as processing fee, stepped up interest rates after the promotional period is offered, prepayment fee – if you repay the amount before the loan term is finished and taking an insurance to cover your loan. All this are likely to increase the interest that you will be required to pay.
As such, it is better to check out our website for rates comparison.
Purpose Of The Loan
The reason for which you are taking the loan will affect the interest that you will be charged. For example, if you are taking a loan to purchase an imported car, the financial institutions are likely to charge you very high interest rates. The interest will vary depending on whether the loan you are taking is secured. If you are taking an unsecured loan, the rates will be high.
In Singapore, personal loans attract higher interest rates as compared to other types of loans because they are generic and they can be used for anything. Personal loans are also more expensive as compared to other loans like home loans, education loans or renovations loans.