Got a Year-End Bonus? Should You Use It to Repay Your Personal Loan Early?

Thinking of using your upcoming year-end bonus coming up for early repayment of a personal loan?

With everything getting more expensive and salaries barely keeping up, the end year bonus is a welcome bucket of cash for those of us who are fortunate to get it. 

More so if you have debts to repay whether it’s a loan for housing, car or other expenses. 

If you’ve taken out a personal loan for a big ticket item this year, you may be welcoming the extra bonus that can help you clear the personal loan. 

But early repayment of personal loans comes with a few conditions such as early settlement fees and the loan interest doesn’t really help if paid early. 

We take a look at the cost breakdown, charges from different banks and considerations to help you decide if repaying a personal loan early using your bonus is worth it. 

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1. How personal loan early repayment works 

There are 2 ways that you can repay a personal loan early: 

• Full settlement: Paying everything required to close the loan before its scheduled end date.
• Partial repayment: Paying an additional lump sum towards the loan while leaving a balance outstanding.

But not every bank allows a partial repayment. Transferring extra money into your repayment account doesn’t necessarily reduce your loan principal or future interest. It could simply sit there as credit or pay other outstanding balances.

For full settlement, you generally pay the outstanding principal, interest accrued up to the settlement date and any applicable settlement fees or other charges. Ask the bank for a dated settlement quotation rather than relying on the balance displayed in your app.

Your remaining instalments also aren’t split evenly between principal and interest. 

Depending on the calculation method, earlier payments can contain more interest, leaving less to save later.

For example, DBS allocates personal-loan interest using the Rule of 78, which gives earlier instalments a larger share of the total interest. Other loans use a reducing-balance calculation. Check your own agreement instead of assuming that finishing halfway through the tenure saves half the interest.

Some banks also require an advance notice. Continue making scheduled repayments until the bank confirms settlement.

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2. Early settlement fees for personal loans in Singapore, by bank 

The early settlement fee on a personal loan may be a fixed amount, a percentage of the outstanding balance, or whichever is higher.

Here’s a comparison of banks in Singapore that offer personal loans: 

Watch for other amounts in the T&Cs, including settlement administration charges, accrued interest, interest instead of notice and promotional reward clawbacks. Previously paid processing fees may also be non-refundable. Ask for an itemised quotation so you know exactly what closing the loan costs.

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ALSO READ: 10 Best Personal Loans in Singapore with Lowest Interest Rates (Nov 2026)

3. When repaying your loan early makes sense

Say you took out a S$20,000 loan at a flat rate of 3% a year over 36 months. 

Total interest would be S$20,000 × 3% × 3 years = S$1,800.

Assume that interest is spread evenly across the tenure: S$1,800 ÷ 36 = S$50 a month.

After 12 instalments, you have 24 months left. Assuming the bank charges an early settlement fee of S$250, you get to save: S$1,200 remaining interest (S$50 x 24) - S$250 = S$950 savings 

This assumes an even allocation of interest. Your bank may calculate the interest saving differently, so confirm the amount with a settlement quotation. Better yet, many banks have published a loan repayment calculator on their websites that you can use to estimate your remaining interest, tied to your specific bank’s terms and conditions. 

Other factors to consider if you should repay the loan early: 

1) You’re early in the loan tenure, with a lot of interest still to pay

The earlier you settle, the more future interest you could avoid.

Using our earlier S$20,000 loan example, with interest spread evenly at S$50 a month, settling after 12 months could save S$1,200 in remaining interest. After an assumed S$250 settlement fee, that leaves S$950.

Wait until only 3 months remain, and the potential interest saving falls to S$150, less than the same S$250 fee.

Your bank’s actual interest calculation may differ, so check its settlement quotation before deciding.

2) The settlement fee is low compared with the interest you’d save

Focus on the dollar saving rather than how small the fee percentage looks.

A 3% charge on S$10,000 is S$300. That could be worthwhile if you avoid substantially more interest, but poor value if only S$100 of interest remains.

For a loan without an early repayment charge, the calculation is simpler. You should still weigh the savings against your need for accessible cash.

3) Your emergency fund stays intact after paying

Being debt-free feels good. Being debt-free with no cash when the fridge dies feels rather less good.

In general, it’s recommended to have at least 3 to 6 months’ worth of expenses as emergency funds. You may need more if your income is irregular or you support dependents.

Set that buffer aside before deciding how much bonus money is available for settlement.

4) You want to lower your Total Debt Servicing Ratio (TDSR) before applying for a home loan

Personal-loan repayments count towards the monthly debt obligations used in a bank’s mortgage assessment.

Under MAS’s TDSR framework, total monthly debt repayments generally cannot exceed 55% of assessed gross monthly income.

Clearing a personal loan can therefore create more room for housing-loan repayments. For example, removing a S$500 monthly instalment on assessed income of S$5,000 reduces the debt ratio by 10 percentage points, all else equal.

Check with your mortgage lender before paying. Settlement doesn’t guarantee approval, and you’ll still need funds for the downpayment and other purchase costs.

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ALSO READ: Total Debt Servicing Ratio (TDSR) and How It Affects Your Loans

4. When you might be better off keeping the loan

Deciding whether to repay a personal loan early in Singapore isn’t just about the fee. It’s also about what happens to the rest of your finances afterwards.

You’re near the end of the tenure. Most interest may already have been paid, making the remaining savings smaller than the settlement charge.

Clearing it would wipe out your emergency savings. Keeping a manageable instalment may be preferable to borrowing again when an unexpected expense appears. You can reserve part of your bonus for upcoming repayments instead.

You have more expensive debt. Outstanding credit card balances may deserve attention first. Compare actual interest rates and charges across your debts; MoneySense recommends prioritising high-interest debt.

Your bank won’t accept partial repayment. If your bonus can’t cover full settlement, an extra transfer may achieve nothing beyond funding future bills. Ask the bank before moving the money.

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5. Should you use your bonus to repay your personal loan early?

Before handing over your bonus, get a settlement quotation, subtract all charges from the interest you’d avoid, and check what cash remains.

If the saving is worthwhile and your emergency fund stays healthy, clearing the loan could be a useful head start on the new year.

Check which personal loan suits your needs and repayment schedule at on MoneySmart.

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