Are you looking forward to taking a personal loan in Singapore? One of the most important factors to consider is the interest rate or the cost of the loan. Your primary goal should be identifying a personal loan lender with a low-interest rate because it directly impacts the total amount payable by the close of the loan term. All about the loan interest rate in Singapore.

To help you identify the best personal loan, it is prudent to start by answering the main question, "What is the average personal loan interest rate in Singapore?" This post takes a closer look at personal loan interest rates in Singapore to help you understand how they are determined. You will also learn the best way to pick the best personal loan lenders in Singapore.

A Closer Look at the Average Interest Rates for Personal Loans

In Singapore, the interest rates that borrowers pay on personal loans depend on individual lenders. This is why you should consider working with lender comparison sites to help you check the lender with better terms and conditions. When focusing on interest rates, you need to appreciate that it is broken down into two groups, effective interest rate, and annual flat rate.

Loan Interest Rate in Singapore: Flat Rate

In Singapore, banks and most lenders charge a flat rate of approximately 5.6% annually on the principal of the loan. This implies that if you get a personal loan of S$60,000 at a flat rate of 6% for three years, the annual interest rate will be S$3,600. This means that the monthly payment will be divided into equal parts, including the interest (divided for 12 months) and the principal (divided by the entire loan term – 36 months in our example).

Effective Interest Rate

Unlike the annual flat rate interest, the effective interest rate reflects the actual cost of taking a personal loan. Look at it this way. As you continue repaying the loan, it means that the principal that you owe the lender continues decreasing. The effective interest rate is adjusted progressively to reflect this fact.

When calculating the flat rate, you might have noticed that it only factored in the principal. However, this is not the only cost that is attached to a loan. To cater for other charges, such as administration fees and penalties that might affect the loan, banks use the effective interest rate. Most lenders charge between 11% and 14% effective interest rates for personal loans in Singapore.

As the number of lenders continues growing, there are some who are willing to offer even lower effective interest rates to attract clients. For example, you might find some personal loan lenders in Singapore with generous offers of as low as 8%.

To further demonstrate the difference between effective interest rates and flat rates for personal loans in Singapore, here are the main estimates for 2021. Note that they are borrowed from different lenders in the country to help you make the right borrowing decision:

Loan Term (Years)

Annual Flat Rate (Average)

Effective Interest Rate (Average)

One

5.44%

10.23%

Two

5.82%

9.65%

Three

5.96%

9.47%

Four

6.01%

9.41%

Five

6.03%

9.28%

Table 1: Annual average flat rates and effective interest rates for personal loans in Singapore

Loan interest rate Singapore

How Lenders in Singapore Determine the Personal Loan Interest Rates

Now that you know the average interest rates for taking a personal loan in Singapore, the next question might be, "How do banks determine what to charge clients?" Well, they review every application and use the following factors.

The Applicant’s Annual Income

There is a general argument that those with more income pay their debts more effectively compared to others with low income. Lenders in Singapore also hold the view and also use it when determining the interest rates for personal loans. To make this argument applicable, most banks in Singapore only approve loans to applicants earning more than S$30,000 per annum. However, it is possible to get lenders willing to approve personal loans for applicants with an annual income of as low as S$20,000.

While the average interest rate, as we highlighted in Table 1 is approximately 6%, do not be surprised to see it jump up to 13% if the income is low. This means that borrowing a personal loan when your income is less than S$30,000 can push the effective interest rates to as high as 26%.

To enjoy low-cost credit, consider building your annual income over time. Remember that this does not have to come from just your salary. Additional and consistent streams of revenue might be helpful in pulling down the interest.

Principal

This is another crucial factor used by lenders to determine the interest of personal loans. If you have a higher income, you can borrow a larger amount which also attracts lower interest. Because of this consideration, most lenders in Singapore only approve minimum personal loans of about S$1,000. However, they allow borrowers to ask for up to eight times their monthly income. Important to understand the loan interest rate in Singapore.

Loan Term

Financial institutions in Singapore also throw the loan term into the equation to determine the interest rate. Personal loans with longer terms tend to attract lower annual interest rates, but this does not provide the entire picture. If you take a closer look, the total amount payable ends up being more when compared to borrowing the same amount over a shorter period.

The main reason for charging low-interest rates for personal loans borrowed over a long period is because the lender is able to collect more returns compared to those borrowed for a short time. For example, if you borrow $20,000 at an interest rate of 5% for a period of four years, it implies that you will pay $4,000 over a period of five years.

If you check Table 1 above on the Average Cost of Personal Loans in Singapore, you will notice that the average effective interest rate declines as the period of the loan increases. This can be confusing to some borrowers as they wonder whether to go for loans with longer terms to enjoy low-interest rates or short periods and clear them fast.

When it comes to loans, the rule of thumb is to try and get them cleared as fast as possible. So, if you can afford it, try to clear the personal loan as fast as possible. By paying the loan fast, you have the opportunity of regaining full control over personal finances. It is also an awesome method of improving your credit score.

Loan Interest Rate in Singapore: Loan Fees

To process your loan, most lenders in Singapore charge a processing fee. This is used to cover the costs associated with reviewing the applicant’s documents and other related costs. In Singapore, the loan processing fee is between 1% and 2% of the amount you are borrowing. So, if you are borrowing S$10,000 with a 1% processing fee, the lender will charge you S$100 for processing the loan.

In addition to the processing fee, your loan is also likely to attract a late or early repayment fee if you fail to follow the agreed terms. If you are late, most banks will charge you about 25% as a penalty fee on the overdue amount. Therefore, you better follow the agreed loan payment schedule strictly to avoid the penalty.

If you repay the loan earlier than expected, the lender is also likely to charge an early repayment fee. This fee is used to cater for the loss of revenue that the lender could have made if you stuck to the entire loan term. Most lenders charge about a 3% fee on the loans that are paid earlier than expected.

You might want to compare the amount you would have paid by sticking to the loan limit with the early repayment fee to decide whether clearing the personal loan right away is a good idea.

Personal loan interest rate in Singapore

The Easy Way to Get a Personal Loan with Low-Interest Rate

The overall cost of a personal loan in Singapore is determined by adding the processing fees and interest payments within the tenure of the loan. If other fees are applicable along the way, make sure also to include them.

Because different lenders have varying terms and conditions, narrowing down to the one with the best is never easy. Instead of having to review dozens of lenders, running multiple calculations, and sending many applications, there is a simpler method – using Lendela.

Lendela is a loan comparison service that is committed to making the process of identifying the lender with lower interest rates easy and fast. Here, you only need to take a few minutes to submit an application for a personal loan and leave the rest to Lendela. We are here to help you get the best loan interest rate in Singapore.

Lendela will check with different lenders to get you the best offers, alert you to pick the preferred choice and book you an appointment to sign the personal loan agreement. It is that simple.

In this post, we have demonstrated how average interest rates for personal loans in Singapore work. We have also shown you how lenders determine the interest rates to charge every applicant. More importantly, it would be best if you considered working with lender comparison sites, such as Lendela, to easily identify Singapore lenders with good terms and conditions, such as low-interest rates.