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Understanding Personal Loans: Why And When Should You Use It?

Alevin Chan

Alevin Chan

Last updated 04 May, 2023

Being financially responsible doesn’t stop at never carrying a balance on your credit card. Truth is, we may find ourselves facing an unexpected financial curveball that forces us to take up a personal loan. 

True financial responsibility is the ability to not only to avoid financial pitfalls but also to understand how to act when one inevitably comes up. Crucial to your ability to manage unexpected financial changes is having the knowledge of what financial tools are available, and how to use them appropriately.

But if you do not understand credit cards, personal loans, balance transfers and the like, you could make the wrong choice in a financial emergency, creating more problems down the road.

Take, for example, personal loans. Perhaps it’s because of Asian customs that colours borrowing money a subtle shade of wrong – or perhaps because nobody thinks they’ll ever land in a situation that warrants a loan – personal loans in Singapore are considered a tricky territory to tread.

This is in spite of personal loans being one of the most straightforward and easy-to-understand products, along with competitive interest rates that translate into a low cost of borrowing. 

In this article, we take an in-depth look into why and when you should use a loan.

Table of contents


SingSaver Exclusive Offer: Enjoy the following rewards when you sign up for a CIMB Personal Loan:

Receive an Apple iPhone 15 128GB (worth S$1,311) or a Dyson V12 Fluffy (worth S$969) or an Apple Bundle (worth S$737) [Apple iPad 10th gen 10.9 wifi 64 GB + Apple AirTag] or a Dyson AM07 (worth S$459) or up to S$1,200 Cash when you get approved for a CIMB Personal Loan with a min. loan amount of S$8,000 and tenure of 3 to 5 years. Applicable to new customers only. Valid till 21 April 2024. T&Cs apply.

Also, apply for a CIMB Personal Loan of at least $30,000 with tenure of 3 to 5 years and get approved by 30 May 2024 to enjoy 2.80% p.a. interest rate (EIR from 5.2% p.a.). Valid till 30 April 2024. T&Cs apply.

Why use a personal loan?

Personal loans, along with credit cards and balance transfers, are three of the most common financial tools available to retail banking customers (read, people like you and me). Of the three, personal loans offer the most stable financial solution and are the easiest and most straightforward to manage.

This is because personal loans:

  • Offer a fixed repayment period, providing clarity and certainty 
  • Have fixed interest rates throughout, allowing you to stabilise your budget
  • Have low interest rates, which translates into low cost of borrowing 
  • Are available in a wide range of configurations, which means you are likely to find a loan that suits your needs

These factors are crucial when a financial emergency occurs and you’re considering the best form of funds to cope. Why?

Well, let’s consider this. When climbing Mount Everest, slow and steady progress is the surest way to reach the summit. Similarly, when you're staring down debt that looks like Everest, steadily chipping away at it, one monthly payment at a time, is the surest way to get clear. 

Fixed repayment period

Personal loans offer fixed repayment periods, which means to say they come with definite start and end dates. As long as you make your payments, you will be free of your debt by the end of the loan. This gives you a sense of certainty because you have a definite forecast for future financial goals. 

Fixed interest rate

Also, personal loans feature fixed interest rates throughout the loan period, which means barring late fees or other penalties, you won’t need to spend more than the stipulated repayment amount each month. This allows you to stabilise your budget, which is crucial in getting back to financial normalcy. 

Low interest rate

All things considered, personal loans in Singapore have relatively low interest rates, which is why you should consider them as one of your first choices for funding. There’s no point borrowing at a high interest rate with high repayments that you can ill afford, creating another debt trap and causing you to go from the frying pan into the fire. 

Wide range of configurations

But perhaps the most favourable feature of personal loans is their wide range of configurations, giving you flexibility in the amount to borrow as well as the time range to pay it back.

Longer loan periods means lower monthly payments, so you should choose a loan package that suits your ability to pay back. No point in choosing a 3-year loan with monthly repayments that you struggle to meet when you will have a much easier time with a 5- or 7-year loan. 

Hopefully we have cleared up the misconception that personal loans are somehow ‘evil’, showing you instead the clear advantages as a financial tool. 

Here's a look at some of the personal loans available.

Personal Loan In Singapore Annual Interest Rate* from Effective Interest Rate (EIR) Min. Loan Amount Max. Loan Amount


3.38% 6.32%  S$2,000 Up to 5x monthly salary

HSBC Personal Loan

4% 7.50% S$5,000 Up to 8x monthly salary or S$200,000

Standard Chartered CashOne Personal Loan

3.48% 7.99% S$1,000 Up to 4x monthly salary or S$250,000
OCBC Personal Loan (for existing loan customers) 4.70% 9.46% S$4,500 (for annual income S$20,000-S$29,999) Up to 4x of monthly salary (<less than S$120,000 annual income)
 UOB Personal Loan


Promotion: 3.77% p.a (EIR 6.89% p.a.)

 7.49%  S$1,000  

When to use a personal loan?

In this next section, we will talk about some common scenarios where personal loans are suitable. 

Despite popular belief, personal loans are not just for emergencies meant as a last resort. In fact, with appropriate use, they can help you navigate many a gnarly financial situations. 

Here are the top six reasons to apply for a personal loan:

1. For planning a wedding

Instead of maxing out your credit cards keeping up with a runaway wedding budget, or feeling resentful and deprived over a lack of funds, why not discuss how to meet the expenses with a personal loan instead?

Plan your budget together carefully, and choose a loan amount and payment period that is comfortable for you. That way, you can have your dream wedding, and a plan to deal with the financial fallout after.

Related to this topic: Wedding Loans: How Do They Work And Should You Get One?

2. For paying off bills or credit card debt

You’ve been paying and paying but your bills just never seem to end. Maybe high interest rates are the culprit.

Using an appropriate personal loan will let you break the cycle of unending bills.

First, work out how much you owe, and how much you are paying each month in bills. Then, look for a loan to pay off all your debt, and choose a tenure and repayment amount that you can comfortably cope with.

What’s left is simply to pay off your personal loan by sticking to the monthly payment schedule.

Related to this topic: Standard Chartered CashOne Personal Loan Review: Fast Loan Approval Within 15 Minutes

⚡Flash Deal⚡: Be one of the first 2 applicants daily at 12pm with at least a minimum loan amount of $15,000, and SingSaver will cover your 1st year’s interest (up to S$400) on top of existing rewards. Valid till 1 May 2024. T&Cs apply.


Singsaver Exclusive Offer: Receive the following rewards when you apply for an SCB CashOne Personal Loan:

New Customers: Receive an Apple iPhone 15 128GB (worth S$1,311) or an AirWheel SE3T Luggage (worth S$1,167) or an Apple iPad 10th Gen 10.9 64 GB (worth S$691.60) or an Ergotune Joobie (worth S$599) or a Nintendo Switch Gen 2 (worth S$399) or up to S$1,040 Cash upon loan approval when you apply for a minimum loan of S$8,000 with a tenure of 3 to 5 years. Valid till 30 April 2024. T&Cs apply.

Existing Customers: Receive up to S$520 Cash upon loan approval when you apply for a minimum loan of S$8,000 with a tenure of 3 to 5 years. Valid till 30 April 2024. T&Cs apply.

3. For home renovations or relocation

Buying a new home, or moving into one, inevitably means requiring a sum of money for various expenses, from moving to renovations to appliance and furniture repairs and replacements.

Sure, you could use your savings, or max out your credit card by putting all your furnishings on instalment payment plans. But what if you run into an emergency while you have no savings and maxed out credit?  

A far better solution would be to look for a renovation loan, which comes with much lower interest rates (but also more requirements, such as an appointed ID firm or contractor, and proof of work.) Some renovation loan packages also provide a secondary loan you can use for furniture.

And, then, if you have any outlying amounts to cover, you can apply for a personal loan to make up for the shortfall.

Related to this topic: HSBC Personal Loan Review: Lowest Income Criteria For Expats

SingSaver Exclusive Promotion: Enjoy the following rewards when you sign up for an HSBC Personal Loan:

Receive an Apple iPhone 15 Pro 256GB (worth S$1,825.75) or a Dyson 360 Vis Nav™ robot vacuum (worth S$1,649) or an Apple Bundle (worth S$$1057.60) [Apple iPad 10th Gen 64GB (worth S$691.60) + Apple AirPods Pro Gen 2 (worth S$386)] or a PlayStation 5 Digital Version (worth S$669) or Dyson V8 Slim Fluffy (worth S$509) or S$50 cash via PayNow when you get approved for a loan of min. S$10,000 with tenure of 3 to 5 years. Valid till 30 April 2024. T&Cs apply.

4. For medical emergencies

The cost of medical care in Singapore is expensive, and Medisave only allows you to claim up to a limit for most conditions and procedures. Even with insurance, you can find yourself staring down a hospital bill in the thousands in the event of an emergency. 

Taking out a personal loan is a fuss-free way to meet your medical expenses. More importantly, the fixed loan period and monthly amount let you pay off your debt at a steady rate with no surprises, freeing you to focus on getting well or taking care of your loved ones. 

Related to this topic: UOB Personal Loan Review

5. For investing and growing your wealth

Borrowing money to invest is not automatically a bad thing to be avoided. Nor does it need to be unnecessarily complicated, attempted only by financial daredevils. All you have to work out is the interest paid, versus interest earned. 

For example, let’s say you’re interested in a short-term investment opportunity that gives you 8% in returns over 5 years. However, the minimum investment amount is $20,000 (which would give you $1,600 in returns).

You’re short by $5,000, which you decide to cover using a personal loan over 3 years. Using our personal loan calculator, we find that the interest for the loan amounts to $508. With a profit of $1,600 from your investment, you’re still ahead by $1,092. 

This seems like a small amount but seasoned investors know that making small gains is the way to riches, thanks to the power of compounding interest. 

6. For unforeseen situations including funerals or divorces

Sometimes life happens, sending even the best laid plans into a tizzy. Funerals and divorces are nerve-wracking emotional roller-coasters, and it can be easy to react with rash decisions, especially financial ones. 

To limit this, consider applying for a personal loan to deal with final expenses or legal fees. This will help enforce a budget on proceedings, preventing things from getting out of hand.

Afterwards, the steady repayment process can help with closure, without inadvertently causing hardship or bringing up bad blood in case of divorces. 



An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.


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

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