If you are in dire need of financial assistance but feel uncomfortable asking relatives and friends for assistance, your best option is definitely to apply for a personal loan.
You can get cash from a bank or other financial organization in the form of a personal loan, and then you pay it back in predetermined amounts over the course of an agreed-upon time period.
However, you will normally be required to have a certain level of monthly income, and the bank will investigate your credit history.
In spite of this, getting a personal loan rather than going to a moneylender is almost always the better and more affordable option.
In this post we will look at bank personal loan in Singapore and share important details like understanding interests, how to choose the right personal loan repayment plan and much more.
What is a personal loan?
A personal loan is a type of debt that can be borrowed from banks, credit unions, licensed money lenders, or other local loan providers for a short or mid-term period (a few months or a few years).
It is paid back in equal monthly installments and can be used for a variety of things, such as debt consolidation, emergency medical expenses, wedding costs, starting a business, and so on.
You can get a personal loan from a bank, a credit union, a licensed money lender, or another local loan provider.
Personal loans are usually more expensive than other types of loans. Because of this, you should only get one if you really need it.
The vast majority of personal loans available today are called “unsecured loans,” which means that the lender will not ask you to put up any assets as security for the loan.
Understanding Personal Loan Interest Rates in Singapore
When comparing the different personal loans in Singapore, you may have discovered that each loan comes with at least two different interest rates associated to it. The following is a comparison of the two:
Advertised Interest Rate
This is the annual percentage rate that is highlighted with a larger font and is being advertised.
For instance, the annual percentage rate of interest for a DBS Personal Loan is marketed as being 3.88%.
However, it does not provide you with an accurate depiction of the situation because it omits certain details, such as the processing and administrative fees.
Effective Interest Rate (EIR)
In Singapore, it is required to list the effective interest rate, also known as the EIR, next to the rate that is being advertised.
This takes into account the particulars of your repayment schedule, in addition to any processing or other fees that may apply.
In a nutshell, the effective interest rate (EIR) displays the “real” interest rate that applies to the personal loan.
0% Interest Personal Loans
Some financial institutions provide promotional zero-interest personal loans for short-term borrowing.
However, the fees associated with executing these transactions are typically rather substantial.
This indicates that you will still be responsible for making payments to the bank in order to repay the loan; the only difference is that the bank will collect the payment from you up front rather than in the form of interest payments later on.
How to Choose the Right Personal Loan Repayment Plan
A personal loan is a significant financial commitment that may last for many years. Take care to select the best personal loan package that enables you to make payments in manageable, regular increments and good luck with that!
It is possible that you will be subject to additional fees if you are late with the payment of the monthly installment.
On the other hand, be sure you don’t go for a loan term that is way too extensive! You will wind up spending a great deal more money on interest payments.
In addition, there is a possibility that you will be required to pay an early settlement fee in the event that you have to repay the personal loan earlier than expected.
Types of Personal Loans available
Most of the time, a person can get a personal loan that isn’t secured for up to ten times their monthly salary.
Most of the time, the interest rate on an unsecured personal loan is higher because the borrower doesn’t have to put up anything as collateral.
When a borrower falls behind on payments, the lender can take legal action to get the money back.
Check out equity loans if you want a personal loan with a longer repayment period, a lower interest rate, and a higher loan amount than what traditional options offer.
If you get a loan based on your equity, you can use the value of your home as collateral. A loan against the equity in your home can be a much cheaper way to borrow money than an unsecured personal loan, especially if the value of your home has gone up over the years.
Should you look at the interest rate or EIR?
It is more realistic to look at the effective interest rate (EIR) rather than the stated interest rate because the EIR shows the “actual” cost of taking out a personal loan, which includes any administrative expenses.
Nevertheless, the interest rate is not the only item that should be taken into consideration.
What about monthly installments?
You also need to make sure that the monthly payments won’t be too much for you to handle.
But if you want to lower your monthly payments, you shouldn’t take out an unnecessary long loan just to do that, because you’ll end up owing the bank more money in total interest.
What loan amount should you take?
You should also check to see if the loan’s monthly payments are reasonable and within your financial means.
However, if you want to lower your monthly payments, you shouldn’t take out an unnecessarily long loan simply for that purpose because you’ll end up owing the bank more money in total interest.
How long should your loan tenure be?
Since the interest will add up quickly if you take out a loan for too long, choose the shortest loan term you can. You need to work toward finding a good balance.
What if you don’t qualify for bank Personal Loan?
Most banks are more flexible with Singaporeans and PRs than they are with foreigners when it comes to the minimum requirements for getting a loan.
If, on the other hand, you make less than $3,000 a month, it might be hard for you to get a personal loan from a bank if you are a foreigner living in the United States. (There are other banks that have even higher minimum monthly income requirements.)
If a bank turns down your request for a personal loan, you can go to a licensed moneylender for help. If you need to borrow money, make sure to only do so from licensed moneylenders. The Ministry of Law keeps a list of licensed moneylenders.
Moneylenders in Singapore are required by law to explain the terms of a loan to you in a language you can understand.
So, you should pay close attention to what you hear and read, and you should make sure the terms of the loan are acceptable to you.
You can look around until you find a licensed moneylender who meets your needs and who you feel comfortable working with.
Moneylenders can charge sky-high interest rates, sometimes as high as 4% per month. Because of this, you should only borrow the smallest amount you need for the shortest amount of time you can afford.