How should you choose loan interest rates with your financial situation in mind?4 min read

Man staring at stacks of coins thinking about his finances, representing loan interest rates

A loan often seems like the easiest way out of a difficult financial situation. Don’t take the decision lightly. Every borrower must understand how the conditions of a loan agreement, including loan interest rates, will affect their budget and credit score.

This post explains the relationship between a loan’s interest rate and other loan variables.

Is the lowest interest rate personal loan the best choice?

The first thing most borrowers look at when applying for a loan is the interest rate. The assumption is that the best personal loan rates are the lowest ones. However, that is not always true.

To illustrate how a low interest rate in Singapore is not always the better choice, let us consider someone borrowing $10,000. They have a choice of two loans:

1.     Long term loan with higher loan interest rates

The lender offers a longer loan term (24 months) and higher interest rate (20% p.a.).

ü  Principal to be repaid is: $10,000

ü  Interest to be repaid is: $4,000

ü  Total to be repaid is: $14,000

ü  Term to repay: 24 months

ü  Monthly instalment is: $583.33

2. Short term loan with lower loan interest rates

The lender offers a shorter loan term (12 months) and lower interest rate (10% p.a.).

ü  Principal to be repaid is: $10,000

ü  Interest to be repaid is: $2,000

ü  Total to be repaid is: $12,000

ü  Term to repay: 12 months

ü  Monthly instalment is: $1,000

(Please note, we are using simplified numbers just to highlight and compare the main differences. Actual interest rates and loan terms may differ.)

As we can see from the calculations above, the borrower with the lower loan interest rate of 10% will pay less in interest over the course of the loan ( vs $12,000). However, they will pay a much higher instalment every month.

A bigger instalment makes it more likely that you may be late for or even completely miss a payment. Emergency expenses such as medical or auto repair bills could cause huge problems. As a borrower, you have to carefully consider this difference.


How to choose a lender

Borrowers in Singapore have two options for a loan: banks and licensed moneylenders. Personal loan interest rates offered by banks and licensed moneylenders in Singapore can vary widely.

The loan interest rate in Singapore depends on several factors, including:

  •         Credit score
  •         Credit utilisation
  •         Loan principal (sum borrowed)
  •         Loan term (length of contract)
  •         Purpose of loan

Bank loan interest rates as of October 10, 2021 range from 3.55% per annum with CitiBank to 6.62% per annum with Bank of China.

Licensed moneylender loan rates are set according to government regulations. Their current upper limit for loan interest rates is 4% per month. Lenders may offer lower rates to be competitive and some may even be able to give loan interest rates as low as 0% to clients with good credit.

For a quick guide on how to choose the right loan, read this article about applying for a loan in Singapore.


Factors besides interest rate

Ads that feature ‘low interest rate’ and ‘zero interest’ are very appealing when you are looking for a loan. However, the details hidden in the fine print will show you the real cost. Here is a list of the most common additional charges.

  •         Origination fee or Processing charges
  •         Late payment fee
  •         Interest on late payments
  •         Missed payment fee
  •         Administrative charges for late or missed payments
  •         Early repayment fee

Depending on how a borrower’s financial situation changes as they repay a loan, these fees and charges can add up to more than the interest on the loan.

Another important factor is the licensed moneylender or bank. Each lender has its own procedures and loan executives. The way that they operate, how they interact with their clients, and the professionalism they display can have a huge impact on the borrower’s experience.

At LoanHere, we place a lot of emphasis on our client relationships. Speak to us and discover the LoanHere difference for yourself.


Rethinking your loan

Sometimes, despite your best efforts, you may be forced to rethink your loan contract.

It could be because of high loan interest rates, unsuitable contract terms, or your relationship with your lender. When this happens, address the problem directly and quickly. It may help you reduce additional expenses, prevent interpersonal conflict, and even avoid legal issues.

A good solution is to refinance with one of LoanHere’s signature services, a debt consolidation loan. This loan streamlines various loans into a single channel with manageable loan interest rates.

For this and other services with the lowest loan interest rate in Singapore, contact us today.




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