An easy-to-understand overview of the four types of personal loan in Singapore, including interest rates, one-time processing costs, loan terms, and when to apply for each.
1) A Personal Instalment Loan (A Loan That Is Paid Back In Instalments)
The first option is to take out a traditional personal instalment loan. The premise is the same: you borrow a particular amount, pay a one-time processing charge (which is usually waived by the bank), and agree to repay the amount in predetermined monthly payments for up to 60 months.
How it works is as follows:
Personal instalment loans allow you to borrow a certain amount of money and repay it in monthly instalments. The interest and fees for the entire loan term are computed and applied to the total loan amount.
Fees: One-time processing fees range between $0 and 3%.
Interest rates vary by bank and start at 3% (Effective Interest Rate of 6.96%) and go up from there. During promotional periods, banks may forgo the processing cost and provide exclusive interest rates.
- A Credit Line
The second sort of personal loan is a line of credit, which is a type of overdraft that only charges interest when you take money from it and can be taken from legal moneylenders in Singapore.
How it works: Once the funds have been accepted, they can be withdrawn via ATM, check, internet banking, or a real bank branch. When you withdraw money, you are charged interest. There is no interest levied when you reimburse the monies.
Fees: Annual fees for lines of credit normally range from $60 to $120.
Before any particular deal, interest rates are typically between 18 percent and 22 percent per annum.
- Balance Transfer Or Funds Transfer
A Funds Transfer (FT) or Balance Transfer is the third type of personal loan (BT). This borrowing feature makes use of the credit available on your credit card. You pay a one-time processing charge and get a low or zero percent interest rate for three to twelve months. Following then, you must either settle the complete amount owed or face interest rates ranging from 18 percent to 29 percent, based on the credit facility from which the money was taken.
How a balance transfer works: A balance transfer allows you to move an outstanding debt from one or more credit cards to a low or no-interest account or credit line. It gives you immediate cash in times of need. It is subject to a one-time processing fee based on the amount of the approved Transfer.
Fees: Banks often charge a one-time processing fee of 1 percent to 5% of your approved loan amount for balance transfer offers. This processing cost will be waived in the best balance transfer deals.
- Plan for Debt Consolidation
The Debt Consolidation Plan, a government-approved scheme offered by all major banks in Singapore, is the fourth form of personal loan. If you have several unsecured loans, If you have a lot of debt, such as credit cards and lines of credit, and you’re having trouble paying them off, consider a Debt Consolidation Plan. It consolidates all of your available unsecured credit into a single account, making debt payments and management easier. There is only one payment deadline to remember, and the interest rates are cheaper than a traditional personal loan.
How it works is as follows: Only credit cards, credit lines, and personal loans are covered by a DCP. Once approved, the new bank will assume all of the other banks’ loans. All sums, including fees, will be paid in full. Those accounts will either be closed or suspended temporarily. You must make monthly payments to the new bank that set up the DCP until the entire balance is paid. After three months, you can refinance your DCP with a new bank with a prior agreement with the former bank’s DCP.
Fees: A one-time processing fee will be charged. The Effective Interest Rate ranges from 6.7 percent to 12 percent per annum, depending on the bank and promotional rates.
Always remember that when taking a personal loan, you should keep in mind that know your obligation. You must be a responsible borrower in order to avoid paying a much larger amount in the end.