Personal loans are the most common types of loans offered by banks and financial institutions in Singapore. These loans come at a particular rate of interest, and a tenure period that can stretch up to 5 years (up to 7 years in some cases). The tenure is usually dependent on the loan amount – customers can choose their tenure period depending on what suits them best. Personal loans attract a higher rate of interest than car loans and home loans, as they are mostly unsecured loans and are one of the most preferred mediums to get near-instant access to funds.
As a potential customer, you definitely want access to a personal loan that comes with the lowest interest rate, consequently amounting to lower repayments. Personal loan Interest rates can vary from one bank to another, so if you wish to minimise repayments towards your personal loan, there are two things that you can do – choose a loan with the lowest interest rate, and choose a tenure period that is fitting to your requirement. Let us evaluate these two parameters as these are fundamental aspects that impact your loan repayment.
As you are already aware, there are several banks in Singapore offering personal loans at different rates of interest. By doing some research, you can find out banks that offer lower interest rates in comparison to many other banks. After you single out a few banks, you can begin negotiating on the interest rate and choose a bank offering the lowest one. By negotiating your interest rate, you can naturally lower your loan repayment, as a lower interest rate would translate into lower repayments. As a matter of fact, banks usually keep their interest rates competitive in order to attract customers - so you wouldn’t find steep differences in rates offered by different banks.
The loan tenure is a crucial aspect that most people don’t know influences their loan repayments. A longer tenure will see you getting a lower interest rate on your personal loan deal. That, however, isn’t really the case as far as paying lesser in interest is concerned - you’ll actually be paying more towards interest in case your tenure period is long. If you wish to reduce your repayment, you might actually want to consider opting for a shorter loan tenure, although the interest rate might be slightly high.
Choosing the right loan tenure is more important than you think, for tenures impact your loan repayments. Banks in Singapore sanction a loan amount equivalent to about 4 times your monthly income. An amount higher than 4 times your monthly income can also be approved by the bank if your credit score is good and your income has been stable (stability here refers to total years of experience in an organisation in the case of salaried individuals and stable income in the case of self employed individuals). Another factor that can work in your favour if your requested loan amount is more than 4 times your monthly income is if you already have an existing relationship with the bank and no existing loans on your head.
So if you wish to reduce your loan repayments, it is recommended that you choose a short tenure, although the fixed monthly payments may be high. You wouldn’t really see a massive difference in the interest rate when you compare rates for long (3 years and more) and short tenures (2 years or less). Also, most banks have different interest rates for different income levels. The rates that correspond to income levels often fall in two slabs - one for individuals with an income of over S$30,000 p.a and another for individuals between S$15,000 and S$29,999 p.a.
Banks have a minimum income criterion that needs to be satisfied in order to be eligible for the loan. Other eligibility criteria include your credit score and existing debts in the form of other loans or credit cards.
Note: A good credit score is perhaps the most important criterion that influences your loan application. Your credit score obtained from your credit report will give banks an idea about your payment history. Your payment history highlight instances of loan defaults, late payments and credit card monthly payment defaults. They also record consistency in making credit card and loan payments - so if you haven’t missed a payment and been consistent, banks will most likely approve your loan application. A bad credit score on the other hand will most likely result in your application being rejected. You can improve your credit score by making timely repayments on existing debt in the form of loan/credit cards and improve your chances of getting future loan/credit card applications approved.
After you’ve applied for the loan by filling out the application form and submitting your documents, an executive from the bank will get in touch with you and ask you to verify your application details, following which the bank will process and review your application. You can expect to receive the funds in your requested bank account in 2-3 working days.