4 Types of Personal Loan in Singapore

Unanticipated events, such as the need for quick medical attention or the discovery of a potentially profitable investment opportunity, can catch us off guard and need some quick funds. In times like these, giving some thought to obtaining a personal loan in Singapore might be a useful way to reduce some of the stress that comes with dealing with one’s finances.

A personal loan is an unsecured debt that is distinguished from other types of loans by the fact that it does not demand any form of collateral, such as your house or vehicle.

Because of its adaptability, it can be useful for a broad variety of endeavours, such as covering travel expenses, funding for wedding ceremonies, encouraging investment goals, easing the burden of home improvements, and assisting with the management of current debts.

It is imperative that you have a solid understanding of the four basic types of personal loans that are available in Singapore before you can make an educated decision about which personal loan is going to be the best fit for your individual financial requirements.

What are the Types of Personal Loans in Singapore?

1. Personal Instalment Loan

The first option available is the conventional personal loan, which may bear different names depending on the bank you choose. However, the underlying principle remains consistent – you borrow a specific amount, often with the possibility of having the one-time processing fee waived by the bank, and commit to reimbursing the borrowed sum through fixed monthly instalments spanning up to 60 months.

Here’s how it functions: Personal instalment loans enable you to borrow a specified sum and reimburse it through equitably divided monthly instalments. Interest charges and fees are computed for the entire duration of the loan and are incorporated into the total loan amount.
Regarding fees: One-time processing fees typically range from $0 to 3%. Interest rates vary among banks, commencing at 3% (with an Effective Interest Rate of 6.96%) and higher. Banks frequently offer promotions where they waive processing fees and provide exclusive interest rates.
Regarding loan amounts: The extent of your instalment loan is determined by the available credit limit within your personal loan or line of credit account. Generally, it can reach up to 4 times your monthly salary. If your annual income exceeds $120,000 and you possess a solid credit history, this limit can extend to 10 times your monthly salary.
Concerning loan duration: The repayment period typically spans from 12 to 60 months.
When should you use it: Personal instalment loans are most useful when you require a substantial sum to cover a significant expense that necessitates an extended period for repayment.
Example: Suppose your investments have taken a downturn, and you find yourself facing a total outstanding debt of $40,000. In this scenario, taking out a personal instalment loan, perhaps with a 24-month tenure, allows you to systematically settle the debt through equal monthly instalments throughout the loan’s duration.

2. Line of Credit

The second category of personal loan is the “line of credit,” which functions as an overdraft facility, charging interest solely when you make withdrawals from the account.

Here’s how it operates: Upon approval, you gain access to the funds, which can be withdrawn through various channels such as ATMs, checks, internet banking, or by visiting a physical bank branch. Interest accrues only when you utilise these funds, and once you repay them, no additional interest is applied.
Concerning fees: A line of credit typically involves an annual fee, typically falling within the range of $60 to $120. Interest rates generally hover between 18% to 22% per annum, before any promotional offers.
Regarding loan amounts: Banks typically extend a credit limit of up to 2 times your monthly salary, although this limit can increase to 4 times or even 6 times when other credit facilities are factored in.
Regarding loan duration: There is no fixed tenure associated with a line of credit. You have access to this facility for as long as you require it, with interest charges incurred only when you utilise the funds.
When should you use it: A line of credit serves as an invaluable contingency fund for unforeseen expenses. If you find yourself in need of emergency funds, you can swiftly withdraw cash without undergoing a lengthy approval process. However, the key is to tap into these funds only when absolutely necessary.
Example: Let’s say you’re a small business owner requiring a standby cash resource to purchase office equipment, and supplies, or hire additional staff during a bustling sales period. Once that peak period subsides, promptly repay the borrowed amount from the line of credit to maintain financial prudence.

3. Funds Transfer or Balance Transfer

The third category of personal loan is the “Funds Transfer (FT)” or “Balance Transfer (BT)” option. This lending facility harnesses the available credit on your credit card.

It involves a one-time processing fee and grants you access to a remarkably low or 0% interest rate for a duration spanning 3 to 12 months. After this initial period, you’ll either need to settle the entire outstanding amount or face interest rates ranging from 18% to 29%, contingent upon the credit facility from which the funds were sourced.

Here’s how it functions: A balance transfer empowers you to transfer the outstanding balances from one or more credit cards to an account or credit line offering low or 0% interest. This feature provides swift access to cash during emergencies or times of need, subject to a one-time processing fee based on the approved transfer amount.
Regarding fees: Balance transfer offers typically involve a one-time processing fee, typically ranging from 1% to 5% of the approved loan amount. The most favourable balance transfer offers may waive this processing fee entirely.
Regarding loan amounts: Typical balance transfer loans commence at a minimum of S$500 but can extend to 10 times your monthly salary, particularly if you possess a substantial income and a strong credit history.
Regarding loan duration: The standard repayment period spans from 6 to 12 months before transitioning to a higher interest rate.
When should you use it: Balance transfers prove invaluable when you urgently require cash or anticipate a significant, short-term expense on the horizon, aiming to circumvent the high interest rates associated with other loan facilities. Common scenarios encompass consolidating repayment for outstanding debt across multiple credit cards, handling emergency vehicle repairs, medical bills, and seizing investment or business opportunities. Additionally, remember to compare the most advantageous balance transfer offers on the market, some of which may entirely waive or offset the processing fee through incentives or cashback programs.
Example: Imagine having a total outstanding debt of S$30,000 scattered across numerous credit cards, each burdened with interest rates ranging from 20% to 25% monthly. By employing a balance transfer, you can consolidate all these outstanding credit card debts into a single sum, progressively repaying this consolidated amount each month. Throughout the loan tenure, you’ll enjoy either zero or minimal interest rates, affording you some much-needed breathing room. It’s essential to develop a plan to clear or significantly reduce the total outstanding debt by the end of the tenure to optimize its benefits.

4. Debt Consolidation Plan

The fourth category of personal loan is the “Debt Consolidation Plan” (DCP), a government-approved initiative accessible through all major banks in Singapore.

If you find yourself grappling with multiple open unsecured loans, such as credit lines and credit cards, and the challenge of managing numerous repayments, a Debt Consolidation Plan offers a viable solution. It consolidates all your unsecured credit obligations into a single entity, simplifying repayment and enhancing your ability to manage debt.

This approach means you only need to keep track of one repayment due date, and the interest rates are generally more favourable compared to standard personal loans.

Here’s how it functions: A DCP exclusively covers credit cards, credit lines, and personal loans. Once approved, the new bank takes over all existing loans from other banks, settling all outstanding amounts, inclusive of fees and charges. These accounts are either closed or temporarily suspended. Subsequently, you make monthly payments to the new bank that facilitated the DCP until the total amount is cleared. It’s also worth noting that you have the option to refinance your DCP with a new bank after a three-month period, provided you reach an agreement with the previous bank overseeing the DCP.
Concerning fees: A one-time processing fee applies. Depending on the bank and promotional offers, the Effective Interest Rate typically ranges from 6.7% to 12% per annum.
Regarding loan amounts: The loan amount encompasses the total outstanding balances on your credit cards, credit lines, and personal loans. To qualify for a DCP, you need to have an outstanding debt amounting to at least 12 times your monthly salary.
Concerning loan duration: DCP tenures vary from one to ten years.
When should you consider this option? A Debt Consolidation Plan proves invaluable if you face challenges in keeping up with multiple loan repayments and bear a substantial debt load, typically around 12 times your monthly salary. It not only affords you lower interest rates but also instills discipline through a structured repayment plan. Since your other credit facilities are either closed or temporarily suspended until the DCP is fully repaid, it reduces the likelihood of accumulating additional debt.
Example: Envision having an outstanding debt of $100,000. By applying for a debt consolidation plan, you consolidate all your credit facilities into one, allowing you to channel your focus into systematically repaying this debt over an extended period, spanning up to a decade.

Need help with multiple unpaid debts, check out how a debt consolidation loan can help you.

Whether it’s covering large expenses, managing emergencies, or consolidating debt and getting a handle on it more effectively, each form of loan has its own set of benefits and optimal use cases.

When looking at these different kinds of loans, it is essential to give careful consideration to the fees, interest rates, total loan amounts, and repayment terms that are involved.

Borrowers in Singapore may manage their financial issues more successfully, ensuring that they have better control over their finances and reach their financial goals with confidence if they select the personal loan type that is the most fit for them.

Published On: September 15th, 2023