When you’re ready to plan that big wedding, buy a new set of wheels or simplify debt you already have, a personal loan could help you cover the upfront cost. Understanding exactly how personal loans work is key to getting the best rate and repayment terms you’re eligible for.
Finder provides a free service that lets you find the right financing for you. Sort through your personal loan options from banks and different lenders.
A personal loan is a secured or unsecured line of credit up to S$250,000 over one to seven years. You can use the money for a range of purposes, such as buying a car, consolidating debt, paying for a wedding or even taking a holiday.
Personal loans are an agreement between you and a lender for you to have a certain amount of money and pay it back over time. Here is how personal loans work:
Application and approval.You can apply for a personal loan from a bank, credit union or standalone lender online, over the phone or in-branch, depending on what application types the lender offers. The time it takes to be approved depends on the lender, but it can range from anywhere between 60 seconds to a week or two.
Loan contract. When you are approved for a loan, you will need to agree to a loan contract that sets out certain terms. These terms include how long you’ll have to repay the loan, what fees you’ll need to cover, and the rate of interest you’ll be charged on your loan amount.
Loan terms. Your loan terms will be set out in your loan contract. Loan terms generally range between one and seven years.
Loan costs.Lenders agree to lend you money in exchange for interest. This interest can be fixed or variable. Other loan costs include establishment fees, monthly fees and annual fees. You should also check if you will be charged fees for repaying your loan early or making additional repayments.
Loan types. There is a wide variety of personal loans available in the market, with each one coming with a specific set of terms and restrictions. For instance, when you apply for a car loan the lender often requires that the entire loan amount is used for your car purchase. The car is also often required to be used as security in case you default on the loan. An unsecured personal loan, on the other hand, is less restrictive and you can use the loan amount in almost any way you choose.
The types of personal loans that are available to you
There is a wide range of personal loans available in Singapore to those who have stellar credit, average credit or bad credit. Find out what loan may work for you with the below options.
Secured personal loans. This type of loan works by you offering an asset as security in exchange for lower rates and fees. Usually, this loan is used to purchase a car, but other types of assets can be used as well.
Unsecured personal loans. If you don’t want to put up an asset as security or want to finance other endeavours unsuited to a secured personal loan, you might want to consider a loan that doesn’t require a guarantee.
Debt consolidation loan. Existing debt can be managed by taking out a debt consolidation loan. Consolidate separate loan accounts into one easy-to-manage loan with a potentially lower rate and with fewer fees.
Overdrafts. An overdraft is a lot like an unsecured loan, but it is generally attached to your everyday bank account. You are given a set amount that you can withdraw from your account, once your own funds have been exhausted.
Bad credit loans. If you have bad credit but are in need of a loan, there are still options available to you. Either apply with a lender who doesn’t perform a credit check, or who accepts applicants with negative listings on their file.
How to compare personal loans
This section is about:
What makes a personal loan competitive
The interest rate and fees to expect
Working out your borrowing power
Features of personal loans: What makes a loan competitive?
When comparing your personal loan options, it’s helpful to keep in mind the range of features that are available with these loans. When comparing, here are some of the questions you’ll need to ask.
Does the loan have a competitive interest rate? Rates on personal loans will be either fixed or variable. Compare rates across similar loan products to ensure you’re getting the best deal.
What are the fees and charges? You’ll need to consider both ongoing fees and fees charged at the onset of the loan. Common fees include an application fee or loan set-up fee, while monthly fees and annual fees are common ongoing fees. You may also be charged to use additional features of the loan.
Is there repayment flexibility? How often are you able to make repayments? Are you able to make additional repayments or pay off the loan early without penalty?
Do the loan terms match your needs? Personal loans are usually offered for terms of between one and seven years, with other loans on offer for shorter periods. Some lenders are more restrictive than others when it comes to how long you have to repay your loan – for instance, only offering terms of one, three or five years. Make sure the loan terms on offer are what you need. Long-term loans over seven years often see lower repayments but a greater amount of interest paid.
The interest rates and fees to expect on personal loans
The interest rate and fees you are charged depend on the loan you apply with (you can compare these on the table above), but each loan type comes with similar costs, and understanding these can help you compare personal loan options.
The interest rate
Your interest rate will either be fixed or variable. Car loans tend to come with fixed rates, while unsecured loans offer both, but you will find a mix of variable and fixed rates within each loan type. Variable rate loans mean the loan is more flexible and comes with longer loan terms, but fixed rate loans usually come with restrictions, such as not allowing you to make extra repayments. Fixed rate loans also come with shorter terms, normally up to five years.
There are three types of fees you should expect: Upfront fees (establishment fees, application fees), ongoing fees (monthly, annual or direct debit fees) and fees that are charged if you default on the loan or miss a repayment.
What will my monthly repayments be on my new personal loan?
To get an estimate of your borrowing power, input your loan amounts into the personal loan calculator in the comparison tables above and you’ll see what monthly repayments will approximately be.
Applying and being approved for a personal loan
This section is about:
Who is eligible for a personal loan?
Documents you need for your application
How to improve your chances of being approved
The application process
Who is actually eligible for a loan?
Eligibility for personal loans depends on a few different things:
If you have a low income. Applicants with low incomes can still be approved for personal loans. It’s always a good idea to check the borrowing requirements and check your repayments with a calculator.
If you have bad credit. You’re still able to apply for certain personal loans if you have negative marks on your credit file. Bad credit loans are still possible. You might end up paying a higher interest rate on these loans, so it’s important to compare a range of offers before applying.
If you have an existing credit card or personal loan debt. You may still be approved for a new personal loan but if this is the case, but you should calculate your repayments and your debt levels before proceeding.
If you don’t meet the minimum requirements. You still might be able to apply with a guarantor. This is where someone, usually a family member such as a parent, agrees to ‘guarantee’ your personal loan should you fail to meet your obligations.
But I'm an expat/foreigner with work visa - can I still get a loan?
Did you know that you could still get your personal loan approved if you hold a visa, although many of the major banks won’t lend to you. If you are researching institutions that might provide loans to you, then it’s best practice to go in armed with as much knowledge as possible. Find out what banks could offer you a loan, what the criteria are and how you can maximise your chances of being approved.
What documents will I need when applying for a personal loan?
Each bank and institution have their own criteria that you will have to meet to finalise your loan application.
You will usually need any of the following to prove your identity:
Driver’s licence or I/C for Singaporean and Permanent Resident
S or E Pass and passport for a foreigner
Latest utility bill displaying your address
You will need to verify your income, with the actual verification required differing between lenders. Common requirements are as follows:
Latest three months payslips + Latest income tax notice of assessment
Letter of employment
For self-employed: Copy of latest income tax notice of assessment (must be in business for a minimum of 2 years)
You may also need any of the following documents:
Statements from other loan accounts/credit cards
Applying for a car loan requires various documents to have the car verified:
Car dealers/distributors’ contact information, or the sellers’ contact details if it’s a private sale
Copy of Vehicle Sales & Purchase Agreement
Copy of employment pass with validity date 6 months before expiry date (for foreigners only)
Borrower’s/Guarantor’s documentary proof of income
Latest computerised/electronic payslip
Or Latest Income Tax Notice of Assessment (issued by IRAS)
Or Last 6 months’ CPF Contribution History
How can I improve my chances of the loan being approved?
There is no way to guarantee your approval for a personal loan, but giving yourself the best chance at being approved starts with meeting the eligibility criteria set by the lender. To further your chances of being approved, keep the following in mind:
Establish your borrowing capacity. What repayments can you afford? Lenders will use a variety of criteria to decide how much you’re eligible to borrow, but you need to know how much you can afford to repay.
Building good banking history. Keep your account in good standing to build a positive relationship with your bank, even if you don’t plan on borrowing from them.
Keep your credit rating in good standing. Make sure you keep track of all your payments, from credit cards to utility bills, because any arrears, debts, or missed payments will affect your ability to access credit.
Keep track of your saving goals. If you manage to contribute to your savings regularly, it shows lenders that you are likely to manage ongoing loan repayments.
How to apply for a personal loan
Get ready to make your purchase. Make sure you know how much you want to borrow and have worked out that you can meet the repayments.
Choose a secured or unsecured loan. If you already own an asset or are looking to buy one, then a secured loan may be a better option. If not, you may want to consider your unsecured personal loan options.
Decide between a fixed or variable rate. A fixed rate loan means your repayments are set for the life of the loan and can’t fluctuate, whereas a variable rate loan can increase or decrease your repayments over the life of the loan.
Choose your terms. A calculator can help you work out your repayments.
Start your personal loan research and comparison. This is an important step to finding the best loan option for you.
Click through and apply. Once you find the loan you want to apply for, simply click ‘Go to Site’ to apply.
Why is there an advertised interest rate and an effective interest rate?
The advertised rate (also known as nominal rate) is the interest the bank charges you on the sum you borrow. The effective interest rate (EIR) reflects the true cost of borrowing to the consumer, which includes a variety of fees on the services the bank offers. These may be the administrative fees, which are added to the interest charged on your loan, and increases the amount you have to pay back in total. Hence, if you are considering a personal loan, you should definitely pay attention to the EIR – which is the one you have to pay.
The questions we’ve been asked about personal loans
Different lenders can have your loan amount transferred to you within different amounts of time. Some banks are able to offer existing customers same-day personal loans, and some payday lenders can have loan amounts transferred to new customers within an hour of approval. If you are in need of urgent cash, it is advisable to check how long it will take to receive your loan amount before you apply.
At the time of writing the average EIR is 12.6% p.a. It’s important to keep in mind interest rates can fluctuate from 8% p.a up to 30% p.a. (or more depending on your credit score). The rate will depend on whether the loan is a fixed or variable rate, or secured or unsecured.
Secured loans, as the name suggests, means that you offer something of value as security on the loan. If you cannot honour your loan, you may find that the bank will repossess your car and sell it.
Unfortunately, there’s no easy answer to this question. The best loan for you will depend on what you need and also what loans you’re eligible for. You can use the comparison tables available on finder Singapore to compare similar loans and select the most competitive loan option that offers the features you want. If you are eligible, then you may apply.
You may be able to pay back your personal loan early depending on the conditions of your loan. Most variable rate personal loans allow for additional repayments or paying back the loan ahead of time without penalty. Fixed rate personal loans usually come with exit fees and early repayment fees or limitations on how much you can repay ahead of schedule. You will need to check if there are fees involved, before paying extra on your loan. While you may save on interest repayments, you may not come out ahead if you have to pay the early payout fees. You can calculate how much you could potentially save with this calculator.
If you are having trouble repaying your loan, you’ll need to get in contact with your lender. They may be able to organise a payment plan with you, or offer an alternative option to help you manage your repayments. You also have the option of getting in touch with Credit Counselling Singapore (CCS), a non-profit that helps people deal with their debts.
Same day personal loans are a relatively new feature and require you to meet the criteria set out by the bank. Some require you to be an existing customer or apply by a certain time of day, and when approved, you’ll get access to your funds on the same day. Find out what lenders offer this feature.
Yes. Many lenders will consider you for a personal loan if you work part-time or casually.
The answer to this question depends on what type of loan you are getting. If you are getting a secured car loan then all details of the car and finance agreement and registration must be provided to the bank or lender before you receive the money. However, if you are getting an unsecured personal loan, then you only need to give a general idea of the loan purpose to the bank. If you are consolidating debts then you’ll have to give details of your other loans and credits to the institution.
You can consider an unsecured personal loan or a secured personal loan for car purchase. Personal loans can be used for purchasing a car, especially if you want to buy an older model or a car that does not fit in with a lenders criteria. However, it is important to keep in mind that these unsecured personal loans come with a higher interest rate than a loan secured to a vehicle.
Credit unions are different to banks in that they operate in a not-for-profit business model. Typically, you will find that there are not as many fees or charges with a credit union loan, which means the interest rate could be lower. Credit Unions are governed by the same regulations as banks, so it’s just as safe to apply for a credit union personal loan.
If you have a variable rate personal loan, then you may notice that your interest rate may go up or down. This could happen due to a range of factors. If you’ve found your rates have gone up, it may be a good time to consider refinancing your personal loan.
Credit cards can give you convenient access to a line of credit, and you have the choice between a personal loan or credit card for a variety of purchasing needs. To work out which option is best for you, think about how you need to make the purchase (if it’s in cash, you’ll be charged a cash advance rate for a credit card), how you like to repay your loan (you can choose to just repay the minimum amount with a credit card) and what you’re purchasing with your funds.
If you have bad credit and are worried that you may not get a loan from a bank or credit union, you may see ads for personal loans on Gumtree and wish to apply. As with any form of finance, you should always do your due diligence before applying. You should always check for a Monetary Authority of Singapore (MAS) license and research the lender thoroughly. Alternatively, you could consider a no credit check personal loan lender.
Whilst a short term loan, also known as a payday loan is a type of personal loan, there are a range of differences that make this type of lending completely different. Personal loans are generally taken out over one to seven years, whereas a payday is between 16 days and one year. Payday loans are also for smaller amounts – between S$100 and S$5,000 – and are available to those with bad credit.
Personal loans can vary greatly in size from S$1,000 and upwards of S$200,000. If you’re purchasing an asset such as a car, keep in mind you may need funds to cover insurance. Many banks and lenders will consider up to S$20,000 and S$30,000 to be a medium sized loan. If you are only going to borrow between S$10,000 and S$20,000, then a small personal loan may be more suitable for your needs.
Most lenders will have a minimum income that you need to earn to be eligible, but others will only require that you are employed or have the means to repay the loan. Minimum incomes can range from S$20,000 p.a. to S$30,000 p.a. but there are low income personal loans available.
Lenders use a variety of information to determine your eligibility for a personal loan, including your credit rating. The information on your credit file includes negative information such as defaults and bankruptcy listings and personal information such as your name and address. From July 2018, more positive information will be included in your credit file, including the last two years of your repayments for credit accounts.
You can check your credit score for free with finder to get a better idea of where you stand.
Some lenders offer different interest rates to different borrowers depending on how risky they are to lend to. This is what’s called “risk-based pricing”. Lenders that use risk-based pricing may use your credit score as an indicator of how risky you are to lend to.
Once you’ve actually successfully applied and received your funds, it’s important to keep your loan up to date. If you’ve applied for a loan with the bank that holds your everyday account, then you will probably have automatic direct debit set up. If your loan is with a separate institution, then it is a good idea to set up an automatic transfer via internet banking a few days before your due date to allow for processing times. You’ll be able to check your balance, interest rate, repayment dates and schedules. You should login to your loan account regularly to check notifications and payments details. If you want to make additional payments then you could do this by internet transfers, or if your bank allows it – over the counter deposits. If you miss a payment due to insufficient funds, then it is important to call the bank and attempt to rectify the situation as soon as possible.
Yes, personal loans can help with your business needs too. You can access personal financing to help cover business needs — everything from trucks to equipment can be purchased or even leased with a personal loan. The same is true even if you have bad credit. Business vehicles including company cars, trucks or vans can all be financed with a personal loan. If your business requires specific equipment to purchase or lease, such as forklifts, earthmoving equipment, workshop machinery, or even office equipment, you can take out a personal loan to help cover the costs. You won’t have to hurt your business’ cash flow to make the purchase.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at The Lizzies. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
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