Personal loans are borrowing instruments that offer you a lump sum amount or a standing credit line that can be used to meet your financial shortfalls. These loans are usually unsecured, meaning that you won’t have to back it up with a collateral. However, for most personal loans, you’ll have to pay the dues in the form of instalments, spread over a predetermined tenure. Most banks let you borrow up to 4 times your monthly salary if your annual salary exceeds S$30,000 and a bigger amount if your annual salary is considerably more than this threshold.
One of the most important parameters for choosing a personal loan is the repayment amount on the loan. The repayment amount on your loan can be lower for two reasons - lower interest and longer tenure. However, to make sure that you don’t lose too much on interest payments with a longer tenure, choose a loan with low interest rate and low administrative charges. The following section discusses some of the factors that will have a bearing on the final repayment amount.
Shop around for the best possible interest rates - it’s worth the effort. By choosing a loan that offers lower rate, you can reduce your interest payments significantly in the long run. When you compare the rates, consider the effective interest rate of these loans. The effective rate considers not only the flat rate applicable on the loan for a particular tenure but also the administrative charges and interests applicable on them. Also, check whether you are eligible for the lowest rate on the loan. For instance, the EIR on HSBC personal loans start from 7% p.a. However, the interest band in which you’ll be placed, would depend on your annual income, the tenure chosen, and your credit history. The rate offered to you may vary from the published rates, depending on your credit score.
Choosing a low-interest loan may seem to be an attractive proposition. While it could be one of the biggest benefits that you can enjoy, be cautious of any hidden charges, the penalty charges for missing out on repayments and foreclosure charges. Also, find out if the advertised rates will be made available to you or not.
The tenure of a loan can also have a direct impact on your borrowing cost. While, choosing a short tenure may be beneficial if you want to save big on interest payments, it could be an issue because the monthly instalments could be much higher. This would mean that the cash outflow, on a monthly basis, would be high. If you don’t have a steady source of income, paying more every month could disrupt your budget calculations and may even stress your subsistence level, forcing you to clamp down on necessities.
A longer tenure means that your cash flow – inflow and outflow, will be better distributed, putting less strain on your financial standing. Most personal loans in Singapore offer tenure options of 1 year to 5 years. The HSBC personal loan can be repaid over 7 years. By choosing a loan that charges lower interest rates and offers a higher tenure for repayment, you can lower your repayments substantially and save more.
Many lenders in Singapore run promotional offers from time to time when they charge interest rates lower than the usual, withdraw or lower service/administrative charges, and even offer cashback, vouchers, or cash rebates. Each of these offers can sweeten the deal for you because you’ll either be paying less or you’ll be getting back a portion of what you’re going to pay the lender. This ultimately means greater savings.
For example, HSBC is currently offering a lower interest rate of 3.7% p.a. on its personal loan. If you apply for this loan online before the expiry of this offer, you’ll also receive a cashback of S$50 and a complete waiver of the S$88 processing fee.
If you apply for the UOB personal loan before 17 July 2018, you’ll not only enjoy preferential interest rates that start from 4.99% p.a. accompanied by a low processing fee of 1% but you’ll also receive Dairy Farm Group vouchers worth S$250.
Depending on the nature of your relationship with your lender (new or old customer), your credit score, and the time of your application, you may enjoy special privileges for the entire tenure of the loan or for an introductory period. However, be cautious with these offers. Usually, these are time-bound, and have terms and conditions.
If you’re late on your instalment payment or default, the special privileges may be withdrawn and regular/penalty rates will be imposed.With withdrawal of the privileges, the benefits accrued from lower interest rates and charges, will be neutralised.