Personal Loans vs. Personal Lines of Credit: Which Borrowing Option Suits You Best?

Choosing the right financial tool can make a big difference in managing your expenses. Both personal loans and personal lines of credit offer ways to access funds, but they work quite differently. Understanding these differences is crucial for making informed borrowing decisions that align with your financial needs and goals.

This guide will help you navigate the key distinctions between personal loans and personal lines of credit, with a focus on how these financial products are offered and utilised in Singapore. We'll explore their similarities, differences, advantages, and disadvantages, empowering you to choose the best option for your situation.

How personal loans and credit lines are similar

At first glance, personal loans and personal lines of credit may seem like different financial tools, but they actually share a few important similarities, especially in the way they’re offered and used in Singapore.

Both are typically unsecured, meaning you don’t need to pledge assets like your home or car as collateral. Instead, lenders—including Singapore’s major banks and licensed financial institutions—assess your eligibility based on your credit score, income, employment stability, and overall debt-to-income ratio. A good credit history and stable income can help you qualify for more attractive terms, such as lower interest rates or higher credit limits.

Whether you’re applying for a personal loan or a line of credit, you can expect the lender to run a credit check to gauge your financial reliability. These products are regulated in Singapore to ensure fair lending practices, so your financial background plays a significant role in the approval process.

Repayment is another shared trait. With a personal loan, you’ll repay a fixed amount each month over a set term. A personal line of credit, on the other hand, is more flexible—it’s revolving credit, which means you can draw and repay funds as needed, up to your approved limit. This makes lines of credit useful for ongoing or unexpected expenses, while personal loans may be better suited for one-time needs like medical bills or home renovations.

Regardless of which option you choose, payment behaviour impacts your credit score. Timely repayments can improve your score, while missed payments—even on short-term borrowing—are reported to credit bureaus and can hurt your financial standing.

While both options are widely available, keep in mind that interest rates can vary significantly. Personal loans often come with fixed rates, while lines of credit usually have higher variable rates. Be sure to compare offers and understand the terms before borrowing—especially in Singapore’s tightly regulated and competitive lending landscape.

Key differences between personal loans and credit lines

Though both are popular borrowing options in Singapore, personal loans and personal lines of credit are distinct in how they work.

A personal loan is a type of instalment loan. You receive the full amount as a lump sum upfront and repay it in equal monthly instalments over a fixed term—usually between one and seven years, depending on the lender. In Singapore, banks like DBS, UOB, and Citibank typically offer fixed-rate loans with terms that suit everything from home renovations to big-ticket purchases.

Interest on personal loans is calculated on the entire loan amount at a fixed rate, giving you consistent monthly payments that are easy to plan for.

A personal line of credit, on the other hand, is a type of revolving credit. You’re approved for a maximum credit limit, and you can borrow against it as needed. As you make repayments, the credit becomes available again—similar to how a credit card works. This makes it useful for managing ongoing or uncertain expenses, like emergency medical bills or school fees.

Most lines of credit come with a draw period, typically lasting two to five years. During this time, you can access funds freely and may be required to pay only interest or a minimum amount each month. After the draw period, the account enters the repayment period, during which you can no longer draw new funds and must repay any outstanding balance—sometimes over an extended term of up to 10 years.

Unlike personal loans, lines of credit often have variable interest rates. You’re only charged interest on the amount you’ve drawn, but the rate may fluctuate based on market conditions. This means your monthly repayments could vary over time.

The fee structure also differs. A personal loan may include a one-time processing or origination fee, which is usually deducted from your disbursed amount. Personal lines of credit, however, can come with annual fees or withdrawal charges, depending on the bank. For example, some banks charge a fixed fee for every transaction made on your credit line.

While the approval process for both products involves a credit check and proof of income, eligibility criteria can differ. Lenders in Singapore often consider your employment history, income level, and overall debt obligations, as guided by the Monetary Authority of Singapore’s Total Debt Servicing Ratio (TDSR) framework.

When a personal loan makes sense

A personal loan makes sense when you know exactly how much money you need upfront and prefer a structured repayment plan with fixed monthly instalments. It’s typically best for:

• One-time large expenses, such as home renovations or big-ticket purchases

• Debt consolidation, especially for high-interest credit card balances

• Unexpected medical bills or other urgent, clearly costed needs

If you have a specific amount in mind and want to repay it over a set timeframe, a personal loan can be a smarter option, as you’ll receive the funds as a lump sum and repay it with a fixed interest rate.

Many borrowers take up personal loans for consolidating unsecured debt. This helps simplify multiple payments into one and can potentially reduce your overall interest burden—particularly if you're consolidating credit card debt, which may carry rates above 24% p.a.

Another advantage is payment predictability. Because interest rates are fixed, your monthly instalments remain the same for the entire loan term, typically ranging from one to seven years. This consistency makes it easier to manage your budget, even if market interest rates fluctuate.

Personal loans offered in Singapore typically start from amounts as low as S$1,000, with some banks offering up to S$200,000, subject to income and credit eligibility. Major players like DBS, UOB, and HSBC, as well as digital lenders, provide a wide range of options, so it’s worth comparing interest rates and terms before applying.

While interest rates vary depending on your credit profile and income, personal loans generally start at lower rates than personal lines of credit, making them potentially more cost-effective for fixed, known expenses.

Pros and cons of personal loans

Pros

• Fixed interest rates offer predictable monthly repayments

• No collateral needed

• Lower rates for strong credit profiles

• Fast approval and disbursement

• Used for various needs

Cons

• Limited flexibility as additional funds cannot be borrowed once disbursed

• 1%–3% Origination or processing fees

• May not be suitable for ongoing or uncertain expenses

• Higher rejection risk with poor credit

• Early repayment fees may apply

When to use a personal line of credit

You might want to consider a personal line of credit if you prefer flexible access to funds over time. This financing option can be ideal when your expenses are unpredictable or likely to change month to month.

Common use cases include:

• Medical treatments that span several months

• Emergency home repairs where costs may vary

• Weddings or travel where the full cost isn’t known upfront

• Freelancers and gig workers, who may need to smooth out uneven cash flow

• Small business owners looking to cover short-term operational expenses or fund projects

• Individuals with irregular income who use the credit line as a safety net between pay cycles

Unlike personal loans, you don’t receive a lump sum upfront. Instead, you're approved for a credit limit, and you can draw on it as needed, repaying only what you’ve used. Interest is charged only on the amount withdrawn, and most products offer interest-only payments during the draw period.

Just keep in mind: while the flexibility is unmatched, personal lines of credit in Singapore often come with higher interest rates (typically 18% – 22% p.a.) and may include annual maintenance or withdrawal fees.

If your financial needs are ongoing, variable, or hard to predict, a personal line of credit can be a convenient and efficient solution.

Pros and cons of personal lines of credit

Pros

• Flexible access to funds

• Interest charged only on amount used

• No collateral required

• Ideal for managing variable expenses

• Reusable credit limit

Cons

• Variable interest rates (typically 18%–22% p.a.), which can make budgeting harder

• Possible annual and withdrawal fees

• Higher rates than personal loans

• Not ideal for fixed expenses

• Approval depends on credit score and income

Other ways to borrow money in Singapore

The best way to borrow money is to choose the option that matches your needs while keeping interest costs low. Depending on your situation, other forms of financing might offer more flexibility or lower fees than personal loans or lines of credit. Here are some options to consider in Singapore:

Credit cards: Ideal for short-term, smaller expenses, credit cards offer instant access to funds and may come with rewards points or cashback benefits. Some credit cards may even offer instalment-free loans. However, this is not the case for all credit cards, and interest rates can be steep—often exceeding 25% p.a.—so they’re best used when you can repay in full each month.

Debt consolidation plans: If you’re juggling multiple loans or credit card balances, a debt consolidation plan (DCP) from banks like DBS, UOB, or Standard Chartered can combine your debts into a single monthly repayment—often with lower interest rates and a clearer repayment timeline.

Buy Now, Pay Later (BNPL) plans: Platforms like Atome, ShopBack PayLater, and Grab PayLater let you split payments into interest-free instalments. These are ideal for small purchases but can encourage overspending. Late fees apply if you miss payments, so it’s best used with caution.

Home equity loans or refinancing: For homeowners, tapping into your property’s equity can unlock larger amounts at lower interest rates since your home serves as collateral. In Singapore, home equity loans or home equity line of credit (HELOC) are commonly done through mortgage refinancing or term loan top-ups with your existing bank.

Personal overdraft facilities: Some banks offer overdraft services linked to your current account, allowing you to draw more than your available balance—up to a pre-approved limit. While convenient, these facilities usually charge daily interest, making them more suitable for very short-term needs.

Peer-to-peer lending: Alternative platforms such as Funding Societies and MoolahSense connect borrowers directly with individual or institutional investors. These may appeal to those with non-traditional income or limited access to bank loans, though interest rates and risk levels vary.

Online lenders: Online lenders in Singapore—like Lendela or MoneyOwl—tend to offer faster applications and digital approval processes. However, do take note that banks may offer more competitive rates or relationship-based perks if you already hold an account with them.

Before deciding, always compare the effective interest rate (EIR), fees, and repayment terms—and consider how each option fits with your income, goals, and financial stability.

>>MORE: Four types of personal loans: What you need to know