Whether you need a personal loan for emergencies, to renovate your home, for a wedding, or for many other reasons, getting a personal loan in Singapore, consists of many different factors.
There are many different interest rates to choose and consider from, you have to maintain a good credit score rating, and you would have to set a goal of how the repayments will work.
A personal loan interest rate is a percentage of interest that is associated with the principal amount. The lower the interest rate, the lower your monthly payment will be.
The annual personal interest rate (APR) combines the personal loan interest rate and any other fees that may be associated with the loan. If there are no other extra fees, the APR will be equivalent to the personal loan interest rate, however, this is rarely the case.
An effective interest rate (EIR) calculates how the interest rate would look after taking into account all the compounded periods and their effects on the interest amount.
The more often the compounding period is, the higher the interest rate will be. Thus, it is important to consider both the APR and EIR as they may differ significantly based on the compounding periods.
Credit scores assess the likelihood of an individual being able to repay the debts and the probability of risk. Credit scores range from 1,000 to 2,000, with 1,000 being the highest risk of not being able to repay debts and 2,000 with a low chance. Many things account toward getting a good credit score such as credit history, negligence of duty, and how you spend your money.
Credit scores take into account how much of the credit available an individual uses per term. It is said by many advisors that you should maintain a certain level/ratio of how much you use your credit. To improve your credit score, they suggest limiting your credit usage by up to 30 per cent each term.
If you have quite a few credit applications within a short period of time of also applying for a loan, they may be wary that you are overreaching yourself. This can bring more uncertainty and may bring down your credit.
This also refers to the number of applications you've applied for in the past. If there are too many applications, it can lower your credit score as it seems like you are trying to incur more debt.
When applying for a loan, it is crucial that you do not have any late payments on other accounts. This brings down your credibility and trustworthiness. The presence of other loans or debts alone can also risk a higher interest rate.
Just as companies ask for relevant experience in applying for a new job, lenders also ask for credit history. This includes 12 months of history of when payments such as bill payments were made to calculate your score.
To maintain your credit score and to fix a bad credit score, there are many actions you can take. This includes avoiding applying for many credit cards, paying off bills and debts on time, and checking your available credit.
Usually, banks have higher interest rates and more requirements compared to other licensed money lenders. Be wary of loan sharks and check to see if the institution you are working with is registered under a licensed money lender through the Ministry of Law.
Banks still want to make earnings by giving out loans. Before you confirm the loan agreement, try to ask for an interest revised down and ask for a revision. In this case, most lenders will give in and reduce the interest even by a little bit. Even though it may seem small in percentage numbers, once they are applied to your loan amount, they will add up pretty quickly.
To calculate the exact monthly interest or payment you have to pay, there are many resources online to make the calculations. These calculators and resources also have comparisons you can make between different loan providers.
Lendela is an online platform one can use to find the best loan provider for your needs by submitting one application. They will send your application to multiple lenders and help you pinpoint the best provider.
Almost all banks in Singapore have a personal loan product available.
Each bank also provides a loan calculator (e.g. DBS loan calculator) for borrowers to get a sense of their timeline, budget for each month, and how their instalments would work. It also displays the interest rates, potential service fees and other charges.
HSBC personal loan offers loans for up to seven years with a low-interest rate of 3.2 per cent and an effective interest rate from 6 per cent.
This is beneficial for borrowers who want to maintain a low monthly payment for a longer period of time. The minimum loan amount one can qualify for is $5,000.
The maximum amount one can qualify for is four times the monthly salary for those with incomes $30,000 to $120,000, and eight times the monthly salary for incomes more than $120,000. There is an early repayment fee of 2.5 per cent and a late fee of $75.
Standard Chartered CashOne personal loan offers interest rates starting from 3.48 per cent for qualified borrowers with an effective interest rate from 6.95 per cent p.a..
They also charge the lowest interest rate for those who earn less than $30,000 a year. Singaporeans aged 21 to 65 with a minimum annual income of at least $20,000 are eligible to apply for a Standard Chartered CashOne personal loan. The minimum loan amount one could be eligible for is $1,000.
Once applied, the applicants will receive the loan within one business day. There is an annual fee of $199 during the first year and $50 for the subsequent years, which are waived if the payments are on-time for the entire year.
Aside from banks, Singapore also has a list of licensed money lenders you can borrow from. They may be more lenient in terms of lowering the interest rates by negotiating other terms and conditions. Remember to always double-check your sources when going through other sources than a bank!
To get a personal loan with the best interest, it is important to maintain a good credit score, and to know how much you really need. This way, you can plan for the necessary preparations to negotiate and compromise with the money lenders for a better interest rate.
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This article was first published in ValueChampion.
