Should You Take a Personal Loan When Rates are Low? And What Happens if They Rise?

Personal loan rates in Singapore are now as low as 1.85% p.a. (EIR: from 3.40% p.a.). As of the time of writing, I counted 11 loan options in Singapore that are advertising interest rates below 3% p.a. 

If you’re in need of some cash, these figures may be tempting. A lower rate means lower monthly payments, less total interest, and more affordable cash when you need it.

But before you apply, it’s worth asking: Should you take a personal loan when interest rates are low? What happens if rates rise later? This guide will help you weigh the pros and cons, understand the risks, and make a decision that fits your finances.

 

Low personal loan interest rates—should you borrow now?

1. How does a bank loan work?
2. How interest rates affect borrowing
3. Are low interest rates good for borrowing?
4. Can I borrow more if interest rates go down?
5. What happens if interest rates rise after you take a loan?
6. Best practices before taking a personal loan in Singapore
7. Conclusion: Borrow smart, not just cheap

 

1. How does a bank loan work?

A personal loan in Singapore is usually an unsecured loan, which means you don’t pledge any collateral—compare that to secured loans like home loans (for a house) or car loans (to buy a car).

With a personal loan, you borrow a sum from the bank, and pay it back in monthly instalments over 1 to 7 years. Here’s what you need to know:

• Principal: The amount you borrow.
• Personal loan rate of interest: The cost you pay for borrowing, expressed as a percentage per year. 
• Effective Interest Rate (EIR): This is the “true” cost, factoring in fees and compounding, and is what you should compare between loans.
• Tenure: The length of time you have to repay the loan.
• Fees: These can include processing fees, late payment charges, or early repayment penalties.

Banks consider your credit score, income, and existing debts to set interest rates. When banks advertise their personal loans as offering the lowest interest rates in Singapore, always check the fine print—you may not get the lowest headline rate unless you have excellent credit, earn a high enough income, and so on.

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2. How interest rates affect borrowing

Interest rates are the cost of borrowing money and play a major role in loan decisions. The higher the interest rate, the more you pay overall. Lower rates make loans cheaper and can help you borrow more or reduce your monthly payments for the same amount.

Interest rates can also affect how much you’re allowed to borrow. Banks may use them to assess your ability to repay, sometimes limiting loan amounts or being stricter with approvals if rates rise. When rates are high, fewer people may want to borrow; when rates are low, borrowing becomes more attractive and affordable. That’s why tracking interest rates is so important for anyone considering a loan.

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3. Are low interest rates good for borrowing?

Yes—low interest rates can make borrowing much cheaper. For example, borrowing $10,000 at 1.85% p.a. over 3 years costs much less in interest than borrowing the same at 6% p.a. You’ll pay less each month, and less in total.

Interest rate (p.a.)	Monthly repayment	Total interest paid	Total repayment
1.85%	$286.41	$310.76	$10,310.76
6.00%	$304.22	$951.85	$10,951.85

As you can see in the example above, at 1.85% p.a., you pay about $286.41/month and only $310.76 in total interest over 3 years. But at 6% p.a., your monthly payment jumps to $304.22, and total interest more than triples to $951.85.

So all in all, if you do need to take a personal loan for consolidating high-interest debts, financing a big-ticket purchase, or covering emergencies, taking a loan with low interest rates is a smart move.

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4. Can I borrow more if interest rates go down?

As we saw in the section above, lower interest rates reduce your monthly repayment. That means—at least on paper—you could afford a bigger loan.

But just because you can borrow more, doesn’t mean you should. Ask yourself:

• Can you comfortably manage repayments for the full tenure?
• Is your employment secure, and do you have emergency savings?
• Are you prepared for higher costs if you ever need to refinance?

Always borrow what you need, not the maximum you qualify for. Avoid “over-borrowing” just because loans are cheap. As we’ll see in the next section, future rate rises or changes in your job situation could make repayments difficult.

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5. What happens if interest rates rise after you take a loan?

If you take a loan with a floating interest rate, such as certain home loans, your monthly payments and total interest paid will increase if interest rates rise.

But if you take a fixed interest rate loan, which most personal loans in Singapore offer, you will only be affected if you need to refinance your loan during the original tenure.

Suppose you borrow $20,000 with a UOB Personal Loan, whose interest rate is now at 1.85% p.a. You take a 4-year tenure, but 2 years later, you are out of a job and need to refinance your loan to lower the monthly payments to a level you can manage. Now, the best rate available is 4%, and you need to stretch the remaining loan amount out to a x-year tenure in order to lower the monthly payments.

	Original 4-year loan (no refinance)	Refinance after 2 years (new 5-year loan at 4% p.a.)
Monthly payment (first 2 years)	$432.48	$432.48
Monthly payment (after 2 years)	$432.48	$187.37
Tenure after refinancing	2 years (original rate continues)	5 years at 4% p.a.
Outstanding principal refinanced	—	$10,170.36
Early repayment penalty	$0	$305.11
Total interest paid	$759.04	$379.52 (first 2 years) + $1,071.84 (refinanced) = $1,451.36
Total paid	$20,759.04	$10,379.52 (first 2 years) + $11,242.20 (refinanced) + $305.11 (penalty) = $21,926.83

Refinancing lowers your monthly payment from $432.48 to $187.37, which can be a huge help if your income drops. However, this relief comes at a cost—you’ll pay much more in total interest and fees, making the loan about $1,168 more expensive overall. While refinancing eases cash flow, it increases the long-term cost of your loan.

If you struggle with repayments due to higher rates or changes in your financial situation, approach your bank early. In Singapore, banks may offer restructuring options, or you can seek guidance from MoneySense or the Credit Counselling Singapore (CCS).

 

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6. Best practices before taking a personal loan in Singapore

1) Compare widely before you commit.

Start by researching offers across multiple platforms. Platforms like MoneySmart allow you to see rates and features from various banks side by side. You can also make use of official sources like MAS Interest Rate Listings for comparisons and MoneySense to gain a deeper understanding of personal loans in Singapore.

2) Look past the headline rate.

Don’t be swayed by the lowest advertised rate alone. Always compare the Effective Interest Rate (EIR), which factors in all mandatory fees. Pay close attention to any processing fees, late payment charges, and early repayment penalties that could impact your total cost. 

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ALSO READ: 9 Things to Look Out For When Taking Out Personal Loans

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3) Follow a pre-loan checklist

• Borrow only what you truly need—don’t overextend your budget.
• Check your credit report to ensure you qualify for the best rates.
• Read the loan agreement in full, so you understand all obligations and costs.

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7. Conclusion: Borrow smart, not just cheap

Taking a personal loan when interest rates are low can save you money and make repayments more manageable. But the best move is one that fits your needs and future plans—not just the market rate.

Compare widely, read the fine print, and make sure you can afford repayments even if things change. Borrow responsibly to avoid incurring greater costs down the road.

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This article was first drafted with the help of AI and later reviewed and refined by the author.

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