Loan cost & pricing

Effective interest rate (EIR)

The real cost of your loan per year, including fees and repayment schedule.

• EIR takes into account processing fees, compounding and how fast you repay.

• Always use EIR (not just “from X% p.a.”) when comparing loans across banks and financial institutions.

Applied / advertised / nominal rate (“from X% p.a.”)

The headline interest rate that loan providers normally promote, before adding fees and compounding.

• Often much lower than the EIR.

• Good for (their) advertisement, but not reliable for comparing total borrowing cost.

Flat rate vs. reducing-balance interest

Two ways loan providers can calculate interest on your loan.

• Flat rate: interest is calculated on the original principal for the whole tenure (common with some non-bank products); real cost is much higher than it looks.

• Reducing-balance: interest is calculated on the outstanding balance each month; this is how bank personal loans are usually structured in Singapore.

APR (annual percentage rate)

A more “Western” term similar to EIR, showing total yearly cost including compulsory fees.

• In Singapore, APR is less commonly used than EIR, but you may see it in global content or foreign loan providers.

• Treat APR vs. EIR as broadly comparable concepts when benchmarking.

Processing / origination / admin fee

A one-time fee charged when your loan is approved and disbursed.

• Can be a flat dollar amount or a % of the loan.

• Sometimes deducted upfront from your disbursement, so you receive less cash than you borrow on paper.

• This fee is a key reason why EIR is higher than the advertised rate.

Late payment fee vs. overdue interest

Two separate penalties when you miss a payment.

• Late fee: a fixed penalty amount.

• Overdue interest: extra interest on the overdue amount (banks) or late interest (financial institutions, capped at 4% per month).

Early repayment / prepayment / cancellation penalty

Fee charged if you repay your loan before the end of the agreed tenure.

• Some loans allow partial or full prepayment with a fee (e.g., a % of outstanding principal) or clawback of any promo cashback.

• Always check prepayment terms if you plan to clear your loan early.

Lock-in period

The minimum period you must keep a loan before you can refinance or fully repay without a penalty.

• More common on home and renovation loans, but the concept is relevant whenever you consider refinancing or switching.