Taking up a Personal Loan is relatively common in Singapore. A personal loan can serve as a handy tool in managing your financial situation. However, some borrowers may find themselves in a worse state by choosing a wrong loan type or by taking it up too early. Indeed, some of the financial jargons related to personal loans can be confusing. We’ll clear the air for you and look at some key things on Personal Loan Rates, and how you should go about getting the appropriate loan type.

## 1. Difference between Secured and Unsecured Loans

Personal loans come in two forms – Secured Loan and Unsecured Loan. Secured loans require borrowers to pledge their assets (e.g. house, car, properties) such that they can be sold off to recover the money should the borrower defaults on the loan. This is generally used when dealing with large amounts of money.

Unsecured loans, however, do not need the backing of collaterals, which makes them riskier than secured loans. This is why moneylenders tend to charge higher interest rates for such loans.

## 2. Credit Score Determines the Affordability of a Personal Loan

Before applying for a personal loan, assess your credit worthiness by checking your credit report. Your credit history will be used to determine whether you can get a personal loan, and at what interest rate. Lenders usually take into account a set of factors when considering your application and interest rate, which includes your mortgage, credit cards, and other loans.

Most lenders will typically use risk-based pricing in charging interest rates. Essentially, the riskier you are in default on repayment, the higher the interest rate you will be charged at for your loan. Nevertheless, the rates are generally low for those with a good credit score. However, those with a low score will face much higher rates on personal loans. Hence, it is important to compare loans amongst the various options available to get the best deal.

## 3. Fixed Interest Rate

Personal loans with Fixed Interest Rates are usually the preferred option since your repayments will not change for the entire loan period. This serves as a form of stability for the borrowers, who will be able to do proper budgeting and better manage their finances.

## 4. Variable Interest Rate

Variable personal loans, in contrast, charges an interest rate that will be subject to changes throughout the loan period. As a result, your repayments may vary accordingly due to fluctuations in the interest rate. One advantage of the variable interest rate is that it enables borrowers to make extra repayments and clear their debt early. However, take it at your own risk as the interest rate may possibly double or triple from the initial rate when you take up the loan.

## 5. Effective Interest Rates (EIR)

In evaluating your options, always use the effective interest rate (EIR) as the basis of comparison. The EIR can be useful as it reveals the true cost of borrowing, and thus, it is seldom advertised by financial institutions.

A simple calculation of the EIR can be done if you are able to understand the loan’s stated terms.  The derived EIR will take into account the compounding interest over the loan period, and this figure is left out of the nominal (or stated) interest rate. (Note: EIR will always be greater than the nominal rate.)

The formula for calculating EIR is:

Where r is the interest rate per period in decimal form, and i is the effective interest rate in decimal form.

Effective interest rate per period:

Effective interest rate for t period: i(i)− 1

Substituting the first equation into i in the second equation: i= [+ (r / m)]m− 1

Always ask for the EIR to weigh options before choosing a particular loan from any financial institution.

## 6. Comparing the Personal Loan Interest Rates in Singapore

The table below lists down some of the preferred options for taking up personal loans in Singapore, which includes the relevant interest rate and features of each loan. All of this information can be easily sourced from the respective banks’ websites.

 Bank Name of Loan Interest Rate EIR Minimum Annual Income Processing Fee DBS DBS Cashline Instalment Loan 6.8% p.a. 12.83% > S$20,000 2% of approved loan amount POSB POSB Loan Assist 5.18% p.a. 9.89% > S$20,000 3% of approved loan amount OCBC Flexible Repayment (EasiCredit) 3% to 5% monthly of outstanding amount 19.98% to 29.8% > S$20,000 (SG residents), > S$45,000 (foreign residents) $80 Fixed Repayment (ExtraCash Loan) 8.18% p.a. 18.47%$100 / higher of $200 or 2% of approved loan amount Citibank Citibank Quick Cash 4.83% p.a. 9% > S$30,000 $0 (No Processing Fee) HSBC HSBC Personal Loan 3.8% to 5.6% p.a. 7% to 9% > S$30,000 $88 /$0 (for online application) UOB UOB Personal Loan 8% p.a. 14.94% > S$30,000 1.8% of approved loan amount Standard Chartered Standard Chartered CashOne 6.88% p.a. 12.75% > S$20,000 (SG residents) \$199 (waiver available)

It should be noted that most of these rates are generally the best, lowest possible rate available. In addition, one good thing is that most of these banks do provide a personal loan calculator on their websites. This allows you to plan and gauge the amount and type of loan that would be catered to your needs.

## 7. Personal Loans Versus Other Specific Types of Loans

Apart from the regular personal loans that have been mentioned, there are other types of loans made available for specific purposes. These typically have much lower interest rates than the former, and some examples include education loans, home loans, car loans, and renovation loans. It is thus important for you to do your homework before taking up a loan. Review your options and decide which works best for you.