When you take out a loan in Singapore, you're borrowing a specific amount of money from a financial provider. This could be a bank, a credit cooperative, or a licensed moneylender. 

The agreement is that you'll repay the full amount borrowed at a future date, typically with added interest. Although different loans have similar features, the specific type of loan you might consider often depends on its intended purpose.

» Learn more: More resources about personal loans in Singapore 

Making sense of loan terms

Here are some key terms associated with loans in Singapore that you should know:

Principal: This refers to the original sum of money that you initially borrowed from the lender. It's the base amount on which interest is calculated and the amount you are obligated to repay.

Effective interest rate (EIR): This rate reflects the true cost of borrowing. It includes all fees and charges, such as processing fees and repayment frequency, providing a more accurate picture of the total loan cost. Financial institutions in Singapore are required to provide the EIR of their loan products. EIR is useful in comparing different loans to get the best rate.

Instalment: Personal loans in Singapore are typically repaid through regular, scheduled payments known as instalments. These payments are typically made on a monthly basis and consist of a portion of the principal amount, along with accrued interest. The loan agreement will specify the amount and frequency of these instalment payments over the loan tenure.

Loan tenure: This refers to the duration over which you repay your loan, also known as the loan term.

Collateral: An asset a borrower pledges as security for a loan, guaranteeing repayment to the lender.

Total Debt Servicing Ratio (TDSR): Unique to Singapore, the TDSR caps your total monthly debt repayments at no more than 55% of your gross monthly income.

» Learn: Find out how to calculate your loan repayments

In Singapore, loans can be categorised in two ways. One approach is based on collateral (secured vs. unsecured loans), and the other is based on repayment structure (term vs. revolving). Let’s explore these key distinctions further:

Secured loans vs. unsecured loans

Secured loans: These loans require you to pledge a valuable asset, such as your car or savings accounts. By reducing the lender's risk, this security makes secured loans typically accessible to those with lower credit scores or those seeking larger loan amounts, and can also potentially lower interest rates. 

In Singapore, secured loans such as housing and car loans are widely offered by major banks, including DBS, UOB, and OCBC. Less common are secured personal loans using other assets.

Unsecured loans: In contrast, unsecured loans do not require collateral as security. Instead, lenders approve these loans based on your creditworthiness and ability to repay, making them generally more suitable for those with a good credit history and stable income. Types of unsecured loans include personal loans and credit cards, and like secured loans, are also widely available from the major banks in Singapore. 

Term loans vs revolving loans

Term loans: Offer a fixed lump sum of money that is repaid over a predetermined period through scheduled payments, and they are available as both secured and unsecured options. To be eligible, applicants typically need to be Singaporean or a permanent resident (PR), fall within a specific age range, and meet a minimum income threshold.

Revolving loans: In contrast, revolving loans offer a flexible credit line, allowing borrowers to withdraw, repay, and redraw funds up to a limit, with interest charged only on the outstanding balance. Credit cards and lines of credit are examples of revolving loans. Eligibility varies depending on the specific product, but generally requires a good credit score and a stable income.

Types of personal loans

In Singapore, a wide range of personal loan options is available. This section introduces you to several common types of personal loans, outlining their key features and typical uses.

Personal instalment loan

Personal instalment loans involve borrowing a fixed lump sum that is repaid over a set term with scheduled payments, which are often used for specific needs such as home renovations, education, or medical expenses. 

Lines of credit

Personal lines of credit offer a flexible borrowing arrangement, providing access to a pre-approved credit limit. Borrowers can withdraw funds as needed, repay any outstanding balance, and then redraw funds up to their limit again. Interest is typically charged only on the amount that has been withdrawn. This type of loan is useful for acquiring ongoing access to funds to cover unexpected expenses or manage short-term cash flow fluctuations. 

Funds transfer (FT) or balance transfer (BT)

This financial tool allows individuals to move outstanding balances from existing credit cards or loans to a new credit card or loan. It is useful for consolidating balances from multiple credit cards or funding substantial short-term needs, such as emergency repairs or medical expenses.

Debt Consolidation Plans (DCPs)

DCPs are designed to help debtors streamline their debt management by combining multiple outstanding debts, such as credit card balances and personal loans, into a single new loan with a fixed monthly repayment. Often, these plans offer a lower overall interest rate compared to individual debts, making them useful for simplifying finances and reducing interest expenses. 

How do I get a personal loan?

Getting a personal loan in Singapore involves a 7-step process: 

1. Check your credit score: A better score increases your chances of approval and helps secure lower interest rates.

2. Estimate loan payments: Consider the loan amount, interest rate type, and loan tenure to understand your potential repayment obligations.

3. Compare loan providers: Consider factors such as credit score requirements, loan amounts, repayment terms, funding speed, fees, and loan flexibility.

4. Check for pre-qualified offers: This allows you to estimate potential loan terms without affecting your credit score.

5. Submit your application: Provide all necessary documents to your chosen lender.

6. Review loan terms: Check for hidden fees and repayment clauses before signing. Note that creditors use your TDSR as a key factor in determining whether you’re eligible for a personal loan.

7. Sign the agreement and receive funds: Ensure you have a solid repayment plan to avoid late fees and negative impacts on your credit score.

If an individual in Singapore accumulates significant unsecured debt, whether from multiple credit cards or personal loans, they may struggle to manage repayments, which can lead to a decline in their credit score and consequently limit their future loan eligibility.

In such situations, DCPs are an option for providing structured debt relief. Alternatively, for those facing bankruptcy with unsecured debt of under S$150,000 and a viable repayment plan, the Debt Repayment Scheme (DRS) offers a formal, government-administered framework that provides supervised debt repayment.

When debt becomes overwhelming and prevents access to standard personal loans, these structured solutions are crucial for regaining financial stability.