Personal Loans in Singapore — What Does It Mean To Borrow Responsibly?

You need some spare cash and have decided to take up a personal loan.

As always, it’s important to be prudent with any financial choice, so read on to make sure that you’re borrowing responsibly.

Before you sign on the dotted line, do remember to compare the personal loan options available and to do your sums. Will you be able to keep up with the monthly repayments? Or will you end up paying more interest than you should?

In addition, borrowing responsibly means that we should prioritise our needs and not wants.

Here’s what to consider before taking a personal loan, and what it means to borrow responsibly:

1. How does a personal loan work?

One good product that can assist you with your cash flow might be a personal loan from a bank.

Because you’re borrowing money from a bank, you’ll need to fulfil some eligibility requirements and make sure that you’re able to afford the loan repayments. There’s also interest payable to the bank, as well as other associated costs like processing fees.

As an example, let’s take a look at Standard Chartered CashOne Personal Loan:

Interest Rate	From 3.48% p.a. (EIR* from 6.95% p.a.)
Loan tenure	1 to 5 years
Disbursement of funds	Funds disbursed within 15 minutes1 to any existing bank account
Minimum and maximum loan amount	From S$1,000 to up to 4 times your monthly income (up to S$250,000)
Processing fee	S$0
Annual Fee	S$199
Unique feature	For CashOne Personal Loan, you can change your loan tenure for a fee of S$50 per change

Applied Interest Rate (AIR)
Personal loans are pretty dynamic as all depend on (a) how much you want to borrow, (b) for how long and (c) other associated fees. 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. Which brings us to our next point…

Effective Interest Rate (EIR)
Always look at the effective interest rate or EIR. This is the overall interest rate you’ll be paying on your personal loan based on your actual loan tenure and any admin fees.

Paying off a credit card bill with a personal loan The interest payable on a credit card bill is typically >20% p.a. Compare this to the Standard Chartered CashOne Personal Loan which has an applied rate starting from 3.48% p.a. (EIR* from 6.95% p.a.). The wise choice would be to take out a personal loan to pay off your credit card bill — you end up paying significantly less interest, and you can stretch this to more manageable monthly payments from 1 to 5 years.

Loan tenure
This just means the number of years you’ll take to pay off the loan. The rule of thumb is to determine a comfortable monthly instalment amount. For example, instead of scrimping and saving to pay ~$500/month for 2 years, opt for the more attainable ~$200/month over 5 years. Of course, longer tenure would also mean higher interest for your entire loan.

Processing fee
Banks typically charge a processing fee when you take out a personal loan. Good news — there is no processing fee for the Standard Chartered CashOne Personal Loan.

The other requirements such as loan amount and eligibility vary from individual to individual, based on creditworthiness.

To help you understand better, here’s a quick illustration to show how a personal loan works, based on Standard Chartered CashOne Personal Loan:

Larry would like to take out a personal loan of S$10,000^. He can afford to make monthly instalments of up to S$500.

Interest rate: 3.48% p.a. (EIR* 8.64% p.a.)
Loan tenure: 2 years
Monthly instalment: S$446

If he decides to go for a loan tenure of 5 years:
Monthly instalment: S$196 (more comfortable!)

^The money that’s disbursed to him is S$10,000 minus S$199 in annual fees = S$9,801. The rates above are for illustration purposes only. 

2. Is it to finance a need or a want?

We should always be prudent about how we spend our money. So when we decide to take out a personal loan, let’s try to prioritise needs and not wants.

For example, taking a personal loan to buy that S$10,000 sound system is not a need. Perhaps saving up for it might be better? Same goes for that epic leisure holiday (which we can’t do now anyway).

However, we should prioritise urgent things such as medical bills or to make necessary unplanned repairs to the home such as fixing a broken toilet.

3. How much can you afford?

Consider your financial situation. How much can you afford in loan instalments each month? Remember to include your existing mortgage or gym membership fees.

As illustrated above, a longer loan tenure can mean more comfortable monthly loan repayments.

Always do your sums to ensure that you’re able to take on the additional loan repayments — because if you miss a loan repayment, there might be penalties imposed

Consider Standard Chartered CashOne Personal Loan

If you have yet to scout for a personal loan, consider the Standard Chartered CashOne Personal Loan.

Benefits include:
– Competitive interest rate (as outlined above)
– No processing fee
– Allows for a change of loan tenure (for a small fee)
– Fixed monthly instalment
– Get cash disbursed into any existing bank account of your choice within 15 minutes¹ when you apply online²

Apply for the Standard Chartered CashOne Personal Loan here and receive up to $1,200 cashback (promo ends 30 June 2021).

*EIR is calculated taking into consideration the first-year annual fee of S$199; and is based on average loan amount of S$20,000.

¹Standard Chartered Bank (Singapore) Limited’s CashOne Personal Loan / Credit Card Instalment Loan Disbursement Terms and Conditions is applicable if an applicant makes an application for a CashOne Personal Loan (“CashOne”) or a Credit Card Instalment Loan (“Application”), successfully submits a completed Application to the Bank and the Bank approves such an Application. The transfer of funds to the applicant’s designated Standard Chartered Current/Cheque & Save Account(s) or non-Standard Chartered Current or Savings Account (each account a “Designated Account”) (“Loan Disbursement”) is subject to (a) the applicant successfully submitting a completed Application to the Bank; and (b) the Bank approving the Application which must satisfy the Bank’s eligibility criteria, including our credit and risk management policies, as well as prevailing laws and regulations. The Bank reserves the right to reject any Application which does not fulfil our criteria at our discretion. If the Bank is unable to process the Application or the Loan Disbursement due to system failure, system outage, malfunction, delay or any other circumstances whatsoever, whether within our reasonable control or otherwise, the Bank is not able to provide Loan Disbursement within the time periods(as stated in clauses 3 to 5 of the CashOne Personal Loan / Credit Card Instalment Loan Disbursement terms and conditions), and the Bank disclaims all liability arising for any such delay including any loss, damage or inconvenience caused to/incurred by you the applicant, or any third party arising from or in connection therewith. Click here for the full CashOne Personal Loan / Credit Card Instalment Loan Disbursement Terms and Conditions which apply.

²Click here for CashOne Personal Loan / Credit Card Instalment Loan Disbursement Terms and Conditions

³Click here for CashOne Personal Loan MyInfo Cashback Promotion Terms and Conditions

⁴Click here for CashOne Personal Loan Cashback Online Promotion. 

All information provided is for informational purposes only and is not intended to be as advice or an offer for any product or service. SCBSL is not liable for any informational errors, incompleteness, delays, or for any actions taken in reliance on information contained herein. All views expressed in the article are the independent opinions of MoneySmart.