4 Types Of Personal Loans In Singapore

Life constantly throws surprises our way. Some delightful, but others, well, not so much. In Singapore, most people share this common experience: the occasional need for extra funds when life takes an unexpected turn.

Whether it’s a medical emergency, a once-in-a-lifetime opportunity, or simply managing the bills, personal loans are a reliable solution.

However, not all personal loans are the same, and knowing the best one to apply for can make a world of difference in meeting your financial needs.

In this article, we will guide you through the landscape of personal loans in Singapore, focusing on four types: the Personal Instalment Loan, the Personal Line of Credit, the Balance Transfer, and the Debt Consolidation Plan.

• Personal Instalment Loan
• Personal Line of Credit
• Balance Transfer
• Debt Consolidation Plan

Here are the different types of personal loans you should know.

The best way to understand a Personal Instalment Loan is to think of it like a trusty Swiss army knife – it’s versatile and reliable. This loan gives you a lump sum of money that can be used for just about anything, and you agree to pay it back in fixed monthly instalments over a set period of time.

This typically ranges from 0% to 3% of the loan amount. It’s a one-time fee, and it’s important to factor it into your borrowing costs.

The effective interest rate (EIR) for Personal Instalment Loans starts at 2.98% per annum (EIR around 5% p.a.). The actual rate depends on various factors like your credit history, loan tenure, and the lender you choose.

When it comes to this type of personal loan, you have flexibility in choosing how long you want to take to pay back the loan. Loan tenures for Personal Instalment Loans can range from as short as 6 months to as long as 60 months.

The loan amount you can secure often depends on your monthly salary. Typically, you can borrow up to four times your monthly salary. However, if you have a higher annual income (above $120,000) and a good credit history, banks and financial institutions may extend your borrowing capacity up to ten times your monthly salary.

Consider this scenario: You and your partner will have your wedding soon. You’ve crunched the numbers, and it all adds up, but your savings fall short.

Your dream wedding costs S$40,000, and you’ve only managed to save S$10,000. With a Personal Instalment Loan, you can borrow the remaining $30,000 and establish a comfortable repayment schedule, perhaps over 48 months. This way, you can enjoy your dream wedding without depleting your savings entirely.

A Personal Line of Credit acts as a financial safety net at your fingertips. Once approved, you can withdraw funds whenever you need them, making it incredibly flexible for various financial needs.

You can access funds through ATMs, checks, internet banking, or by visiting a physical bank branch. What’s unique is that you only pay interest on the amount you withdraw and not the entire credit limit.

Expect to pay an annual fee, which typically falls in the range of S$60 to S$120. This fee covers the maintenance of your line of credit.

The interest rate usually ranges from 18% to 22% per annum. Again, keep in mind that you only incur interest on the amount you use, not the entire credit limit.

Unlike some other loan types, the tenure for a Personal Line of Credit isn’t fixed. It’s a revolving credit facility, meaning there’s no specific period in which you need to repay the borrowed amount. You have the flexibility to repay at your own pace.

Typically, you can borrow up to twice your monthly salary through a Personal Line of Credit. However, the actual limit can vary depending on the lender’s policies and your creditworthiness.

You have a small business and the busy season is around the corner. To ensure smooth operations, you need to hire extra manpower for just two days. This is where a Personal Line of Credit shines – it provides the funds you need for this short-term boost in staffing without the burden of a long-term loan. Plus, you only pay interest on the amount you use, making it a cost-effective solution to help you manage seasonal business fluctuations.

Also called Funds Transfer, this is a practical solution for managing credit card debt more efficiently. It allows you to move outstanding balances from multiple credit cards into a single account or credit line with a lower interest rate, making it easier to regain control of your finances.

Balance Transfers typically involve a one-time processing fee, which typically ranges from 1% to 5% of the approved transfer amount.

One of the standout features of a Balance Transfer is the interest-free period, which typically spans from 3 to 12 months. During this window, you won’t incur any interest on the transferred balance. However, once this interest-free period concludes, interest rates can vary, typically falling between 17% to 28%.

Balance Transfers often come with loan tenures ranging from 3 to 18 months, providing you with a reasonable timeframe to settle your transferred debt.

This varies depending on your salary and the bank you choose. As a starting point, you may transfer up to 4 times your monthly salary. However, high-salary earners may have the option to transfer up to 10 times their monthly salary. Some banks may have a minimum transfer amount, often around S$500.

Imagine you have S$15,000 in debt scattered across multiple cards, each with an average monthly interest rate of a hefty 25%. This situation can quickly become overwhelming since high-interest charges easily accumulate, making it challenging to get ahead in paying down your debt.

If you secure a Balance Transfer offer with a tenure of 18 months but with  0% interest rate for the first 12 months, every payment you make during the first year goes directly towards reducing your principal debt.

A Debt Consolidation Plan or DCP combines your outstanding unsecured debts, such as credit card balances and personal loans, into one loan. This means you’ll have a single monthly payment to manage, often at a lower interest rate than your original loans.

However, it’s important to note that not all types of unsecured loans are eligible for DCP. Some exclusions include joint accounts, renovation loans, education loans, medical loans, and credit facilities granted for business purposes.

While DCPs typically involve a one-time processing fee, it’s worth noting that some banks offer promotions where the processing fee is waived. The usual fee is around 3%, but this can vary.

The interest rate for a DCP depends on the total outstanding debt you’re consolidating. Generally, the more significant your debt, the lower the interest rate.

DCPs offer a flexible loan tenure, ranging from 12 months to up to 10 years.

The amount you can consolidate with a DCP depends on your outstanding unsecured debt. Usually, you need to have at least 12 times your monthly salary in outstanding debt to qualify for a DCP.

Imagine you have accumulated multiple unsecured debts, and your total outstanding unsecured debt stands at S$50,000. You’ve realised that you’re struggling to make minimum payments, let alone make a dent in the principal amounts.

By consolidating your various high-interest debts into a single loan with a potentially lower interest rate, you can significantly reduce your monthly repayments. Your DCP may offer an interest rate of 4.5%, significantly lower than the 20% interest you were paying on your credit cards.

In the long run, this can save you both money and stress, helping you regain control of your finances and work toward a debt-free future.

Understanding the right loan type for your needs in Singapore is key to managing your finances wisely. Whether it’s a Personal Instalment Loan for flexibility, a Personal Line of Credit for on-demand funds, a Balance Transfer to tackle credit card debt, or a Debt Consolidation Plan to simplify multiple loans, these financial tools are designed to assist you.

More From OMY: A Complete Guide To Debt Consolidation Plan In Singapore