If you’re in urgent need of money, and you’re too paiseh to borrow from your family and friends – what can you do? The answer is to go to a bank for a personal loan.
Of course, your friends and family won’t do a thorough check of your credit history before lending you the money, and they won’t charge interest. (Well, unless they happen to be in the business of splashing red paint on walls and putting up pig heads…)
Getting a personal loan, on the other hand, imposes significantly more requirements (like a minimum annual income) and costs (like processing fee and annual interest).
Before you go down to the bank and start applying for the first thing you see, here are a few things you need to know:
Best personal loans in Singapore (2020)
Here are the current starting interest rates on offer by the most popular personal loan providers in Singapore, valid in Feb 2020:
|Personal Loan||Interest Rate||Processing Fee|
|HSBC Personal Loan||3.7% to 3.8% (EIR from 7%)||None|
|Citibank Quick Cash||From 3.99% (EIR from 7.5%)||None|
|POSB / DBS Personal Loan||From 3.88% (EIR from 7.56%)||1%|
|Standard Chartered CashOne||3.88% (EIR from 7.67%)||Waived|
|UOB Personal Loan||3.68% (EIR from 7.21%)||1%|
|OCBC Cash-on-Instalments||4.7% (EIR from 9.06%)||1%|
|HL Bank Personal Loan||From 3.88% (EIR from 8.78%)||1.5% or $100|
|OCBC ExtraCash Loan||From 5.42% (EIR from 10.96%)||2% or $200|
There’s quite a bit of jargon here, so let’s go through some questions that may have come up.
Interest rates: Notice a whole bunch of interest rates along the lines of “from X%”? That’s because personal loans are pretty dynamic as all depend on (a) who you are, (b) how much you want to borrow and (c) for how long. Banks often personalise your interest rate when you submit an application, so, typically, you’ll see the final interest rate only after your application is approved.
EIR: EIR stands for Effective Interest Rate, and it is a more accurate reflection of the cost of borrowing because it also takes into consideration the other fees (like processing fee; see next point) and loan repayment schedule.
Processing fee: This is the main hidden cost of personal loans and is worth highlighting. The processing fee is deducted from the principal, meaning, for a $10,000 loan with a $100 (or 1%) processing fee, you get only $9,900 in cash. As a borrower, you might not “feel” it, but it does eat into your funds and increase the cost of borrowing.
Now, let’s take a closer look at these loans. We’ll use the case study of “Ms Lee”, a Singaporean who earns $5,000 a month and wants to borrow $10,000 over 3 years.
HSBC Personal Loan
If you need to borrow a large amount but cannot afford a big monthly repayment, consider the HSBC Personal Loan as it offers the longest loan tenure (7 years!) in Singapore. Of course, that also means you’ll be paying 7 years’ worth of interest.
At 3.7% p.a., HSBC offers the lowest personal loan interest rate right now, and on top of that, there are no processing fees.
However, don’t wait until the very last minute to apply for an HSBC personal loan, because it does take a few days for the loan to get approved and the cash to appear in your account.
Citibank Personal Loan (Citi Quick Cash)
Citibank’s personal product is called Citi Quick Cash, and offers a promotional interest rate of 3.99% p.a. (EIR 7.5% p.a.)… But it’s only for new customers who borrow at least $20,000 for 3 years.
In “Ms Lee”s case, the loan amount does not hit the minimum amount for the promotional rate, so the interest rate will be higher. However, even though she does not secure the lowest possible interest rate, she would still pay less interest overall.
For people who need money fast, Citibank promises very quick approval of your personal loan. If you are an existing Citibank customer (credit card + deposit account) you can get the funds as quickly as the next working day. Other accounts may get it up to 5 working days later.
DBS Personal Loan / POSB Personal Loan
Seems like practically every Singaporean has a POSB or DBS deposit account / credit card, which makes it super easy to apply for this loan.
You can apply through the MoneySmart portal, where you can log into internet banking and get your loan processed immediately and credited straight into your account (if you have a POSB/DBS credit card).
If you only have a savings account but no credit card, you will need to furnish your income documents and obviously you won’t get the funds right away.
Note that POSB/DBS does not publish their interest rates online. The actual interest rate is “personalised” based on your risk profile and credit history. Although POSB/DBS personal loans start from a very attractive interest rate, you might actually get a higher interest rate when you apply.
Standard Chartered Personal Loan (Standard Chartered CashOne)
While the POSB/DBS personal loan interest rate is variable, Standard Chartered currently guarantees a flat 3.88% p.a. (EIR from 7.67%) interest rate on their StanChart CashOne personal loans. On top of that, they are also waiving the $199 processing fee.
Those who need cash urgently can consider Standard Chartered personal loan, as they boast instant approval and fast cash disbursement. Apply through MoneySmart and get up to $200 via PayNow by 9 June 2020.
UOB Personal Loan
The UOB Personal Loan works by drawing on your credit limit, so you’ll need either a UOB credit card or a line of credit (CashPlus) to get it. If you do, you get instant approval and instant cash in your account.
If you don’t, you’ll need to apply for either product together with your personal loan. UOB offers instant cash upon approval for new customers, if your application is submitted between 8am to 9pm.
Bear in mind though, though the interest rates are pretty competitive in the market, there’s also a 1% processing fee.
OCBC Personal Loan
OCBC has 2 types of personal loans: OCBC ExtraCash loan (for new customers) and OCBC Cash-On-Instalments (for existing OCBC credit card / line of credit customers).
If you are completely new to OCBC, note that their interest rates are really quite high.
If you already have an existing line of credit with OCBC, OCBC offers a slightly lower rate to convert your un-utilised credit into cash. But again, it’s rather on the high side. Should you need more cash, do consider comparing the other personal loans on the market before committing.
HL Bank Personal Loan
HL Bank may not be the first bank that comes to mind when it comes to personal loans, but it is certainly a product you can consider, especially since they offer one of the highest maximum loan amounts at $250k.
Having recently revised their interest rate to as low as 3.88% per annum, this is a competitive product with a high loan allowance.
But wait, what about 0% interest personal loans?
If it is feasible for you to repay your personal loan in just 1 year, you may also want to consider these new “0% interest” personal loans from Citibank and Standard Chartered.
However, note that while the interest rates are 0%, the processing fees of 3.5% (Citibank) and 4.5% (Standard Chartered) are really hefty compared to the usual 1% (or none). Because of the high processing fees, the EIR of these 2 personal loans are fairly high, at 7.85% (Citibank) and 8.59% (Standard Chartered).
Apart from the processing fee, there is also the high monthly repayment to consider. Proceed only if you are confident about repaying the instalments on time, or you might get hit with late payment fees as well.
Term loan vs credit line — which should you choose?
Pick a bank, any bank – let’s say DBS – and visit their personal loans page. You’ll be confronted with 8 different options! Which should you choose? Most of these will fall into 1 of 3 types of products.
A term loan is a fixed sum with a fixed repayment plan that you agree on before you see the cash. Typically we recommend looking at these which you can pay back slowly and steadily – and most importantly you pay much lower interest rates.
A personal line of credit (sometimes called a credit line, revolving loan, or even “flexible repayment loan”) is a pre-approved amount of money you can cash out in part or whole, but you need to pay back ASAP or else face sky-high interest rates. Don’t fall for it unless you’re absolutely confident you can pay the money back immediately.
These days, most banks base their personal loans on either your personal line of credit or credit card limit. So you will need either credit card or credit line to get the loan. Understand that your credit cards with this bank will be as good as dead because you’ll effectively have “spent” your credit on a cash loan.
How long should your loan tenure be?
Term loans usually range from 1 to 7 years, and you’ll need to commit to a loan tenure beforehand. The longer the term, the smaller the monthly repayment — but the more interest you’ll be charged! So don’t be too eager to lock yourself into a 7-year loan.
Instead, choose the shortest tenure you can manage to minimise your interest, but make sure that the monthly instalment is within comfortable limits.
Interest rate vs effective interest rate (EIR) — what does it all mean!?
Most banks will show you two percentages on their personal loans. The lower one is annual interest rate and it will be in a huge font on their marketing collaterals, e.g. “Personal loan at just 5% p.a.!!!” Somewhere in the vicinity you should find subtle grey text stating something like “(EIR: 12.5%)”. That’s the higher effective interest rate or EIR.
Annual interest rate is easy to calculate. If you borrow $10,000 at 5% p.a. for one year, you pay the bank $500 in interest. Borrow it for 2 years, and you pay $500 x 2 years = $1,000 in interest. And so on.
EIR (effective interest rate) is much more complicated as it also takes into account any processing fees (e.g. 2% of the loan) plus your repayment schedule.
For example, if you borrow $10,000 and repay it in full at the end of 1 year, you would have $10,000 to play with all year. You’ll be “rich” the whole year. But if you have to repay your $10,000 in monthly instalments, you’ll be rich the first month, then slightly poorer and poorer with every passing month as the amount of money dwindles. Everything else being equal, the EIR of the first loan is lower than that of the second.
It also takes into consideration how much of your monthly loan repayment goes to returning the borrowed money and how much goes to paying off interest.
Would you ever take out a personal loan? Why or why not?