Top 6 Myths About Personal Loans, Busted

Ian Lee

Ian Lee

Last updated 07 May, 2021

Think you know all about personal loans? We're here to bust the top 6 personal loan myths!


Personal loans get a bad rep. Tell people you have a mortgage and few will bat an eye – they might even congratulate you. But mention personal loans and the reaction will often be very different. Why is this so?

One reason could be that personal loans are (wrongly) associated with poor financial management or even unlicensed money enders and loan sharks. Sensationalised stories about irresponsible borrowers getting into debt with loan sharks to feed their gambling addictions don’t help either.

But the reality is a stark contrast. Personal loans are a financial tool like any other, and you can use them responsibly to your great benefit ("good debt"), or irresponsibly to your great detriment ("bad debt")

Here are 6 persistent myths about personal loans that we are going to debunk right now.

Myth #1: Personal loans are bad for my financial health

Like we said earlier, personal loans are often regarded as negative to your financial health. After all, what can they do except increase your debt burden?

Actually, personal loans can be used as a debt management tool. It’s called debt consolidation, and it means taking out a loan to pay out higher interest debts, like credit cards. Consider that the effective interest rates for personal loans in Singapore average between 7% to 15%, while the prevailing interest rate on credit cards stands at over 25%.

Consolidating your debt repayments as such can help you to manage your debt repayments better. And you don’t just enjoy a lower effective interest rate. By streamlining your repayments, you can strategically tackle your debts faster and even improve your credit score – a big plus for your financial health.

Personal loans may also come in handy in situations where the loan interest rate can be covered by investing your cash on hand instead.

Myth #2: You can’t get a personal loan if you don’t have a fixed salary

If you’re self-employed, you may think banks would not be interested in giving you a personal loan. This is not true at all, banks are much more flexible than you might think. With 8.4% of Singapore’s resident workforce classified as self-employed, the banks understand that they must also meet the needs of this growing segment.

While most banks set the minimum annual income S$30,000, there are other options for those earning less than S$30,000 per annum. Credit Culture is one such example – they are a licensed moneylender that is open to anyone of any income level, as long as you're employed. They are one of six select fintech companies selected by the Ministry of Law as part of their pilot to develop new business models for personal loans.

So even if you’re self-employed, your chances of qualifying for a personal loan should be no different compared to a salaried person.

Myth #3: If you qualify for a personal loan, you should always apply for more than you need

On the other hand, some people think that just because you qualify for a higher personal loan amount, you should get more than what you need. Extra cash on hand never hurt anybody, right?

Wrong. Applying for a higher amount than what you need, regardless of your eligibility, is a bad financial move. First, while the interest rates on personal loans aren’t as high as credit cards, they aren’t low either. Second, the more loans you take out, the bigger the impact on your credit score. And if you find yourself falling behind on payments because you took out more than you need, well, the impact on your credit score will be even worse. Find out if you really need to take a personal loan with this checklist.

Myth #4: You need to provide collateral to get a personal loan

If your only experience with loans is with housing or renovation loans, it might make sense for you to think that all loans require some form of collateral. This is not true when it comes to personal loans, most of which are unsecured, meaning no collateral is required.

Unsecured loans include, but are not limited to:

  • Credit card loans
  • Credit lines
  • Personal loans (whether instalment-based or variable repayment)
  • Education loans
  • Renovation and furnishing loans

Myth #5: Don’t bother applying for a personal loan if you have a low credit score

The truth is your credit score absolutely affects your eligibility to get a personal loan or any other kind of loan for that matter. But you may be overestimating how low your credit score must go before most banks disqualify you from personal loans.

One way to get around this is to apply for a lower amount and pay it off on time. This will help rebuild your credit score and increase your chances of qualifying for a larger amount in the future. Non-bank financial institutions such as Singapura Finance are also an option, but be prepared to pay higher interest rates.

We also strongly recommend against using licensed moneylenders as interest rates are exorbitant. It will only worsen your credit situation. Here's what you can do if you're looking to get a personal loan with bad credit.

Myth #6: Applying for personal loans is a tedious and time-consuming process

Forms, forms, and more forms, followed by a lot of waiting. This is the impression many people still have about the loan application process. While that may have been true in the past, it is no longer the case today.

Today, you can apply for most personal loans online through MyInfo without having to scan and upload the relevant documents. Several banks such as DBS and Standard Chartered can also process instant approvals, meaning you can get quick cash the very next day.

Compare and apply for the best personal loans on SingSaver

At SingSaver, financial education is our top priority. We hope that by debunking myths surrounding personal loans, you will be able to see them for what they really are – tools that can help you achieve better financial wellness if used prudently.

If you’re interested in getting a personal loan, these are currently the best personal loans with the lowest interest rates. Be sure to compare and apply through SingSaver to ensure that you get the best rates and receive exclusive welcome gifts on top of the bank's own sign-up bonuses!.

Alternatively, check out our review of the Best Personal Loans in Singapore 2021 to see our recommendations for loans to fit different needs.

Read these next:
Your Go-To Personal Loans Guide in Singapore
Best Personal Loans To Ease Your Cash Flow In Singapore (2021)
Balance Transfer vs Personal Loan: Which is Better for You?
4 Times In Life You Should Consider Getting a Personal Loan
What’s the Average Personal Loan Interest Rate in Singapore?


Ian is a former investment banker turned freelance finance writer. He specialises in creating versatile finance content for the attention economy, ranging from personal finance and investing to fintech and cryptocurrencies.


Use a personal loan to consolidate your outstanding debt at a lower interest rate!

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