What is a Personal Loan & How Does It Work

A personal loan is a type of instalment loan from a bank, credit cooperative, or online lender, used for various purposes. It's a useful financial tool for significant, one-time expenses or debt consolidation. Lenders in Singapore typically offer personal loans from S$1,000 to S$100,000, with loan amounts averaging around S$30,000 to S$40,000. Repayment terms generally range from a few months to several years, and interest rates are typically between 2.5% and 10%, subject to credit assessment.

Learn More: Best Personal Loans in Singapore with Low Interest Rates 2025

Back to top

Most personal loans in Singapore are unsecured, meaning they don't require collateral. Lenders assess factors like your financial standing, debt-to-income ratio, and cash flow to determine eligibility and interest rates. For debt consolidation, what some lenders do is pay directly to your creditors instead of depositing the money into your account. 

Repayment typically begins about 30 days post-funding. You'll repay the borrowed amount plus interest in fixed monthly instalments. Personal loans in Singapore have fixed interest rates, ensuring consistent monthly payments. Timely loan repayments can enhance your financial reputation, while missed payments negatively impact it.

Learn More: 7 Mistakes That Ruin Your Credit Score in Singapore

Back to top

Lenders in Singapore offer varied personal loan features, but here are common aspects to expect.

• Origination fee: This is a charge for processing the personal loan, more common with online lenders than banks or credit cooperatives in Singapore.

• Fixed monthly payments: Personal loans in Singapore generally feature fixed interest rates and consistent monthly payments throughout the loan's term.

• Unsecured nature (mostly): The majority of personal loans here are unsecured, meaning you don't need to provide collateral. While these might have higher interest rates than secured loans, they don't risk your assets. Some lenders may offer secured options, using savings or vehicles as collateral.

• Repayment terms: Repayment periods typically span a few months to a few years.

Back to top

Personal loans in Singapore serve various purposes, ideally for significant, one-time expenses that improve your financial situation. Common uses include:

Learn More: 5 Things to Look Out for When Applying for a Personal Loan for the First Time

Consolidating debt 

Consolidate credit cards and high-interest debts into a single monthly payment via a personal loan. This is beneficial if the loan's interest rate is lower than your existing debts, leading to savings and faster repayment.

Learn More: Best Debt Consolidation Plans in Singapore 2025

Home renovation 

Finance costly home renovations, like kitchen or bathroom upgrades, with a personal loan. Ideally, these projects increase your property's value, offsetting interest costs. Compare renovation financing options for the best rates and terms.

Learn More: Finding The Best Renovation Loan In Singapore: A Guide

Emergency expenses 

While you can cover unexpected expenses like car repairs or medical bills with a personal loan or payday loans you should explore more affordable alternatives first, such as local financial aid, borrowing from family or friends, or seeking additional income.

Learn More: Best Smart Payday Loan Alternatives: Fast Cash Without the Debt Trap

Personal expenditures 

While personal loans can fund discretionary expenses like vacations or weddings, financial experts advise against this due to potentially high rates and long terms. If financing is necessary, compare all options to find the most cost-effective one.

Learn More: Wedding Loans: How Do They Work And Should You Get One?

Back to top

A personal loan in Singapore can be a favourable option if:

• It offers the lowest interest rate: The financing option with the lowest annual percentage rate (APR) is the most cost-effective. Compare personal loans with other borrowing methods to determine the most affordable choice.

• You can manage the monthly repayments: Missing payments can lead to late fees and negatively impact your financial standing. Utilise a personal loan calculator to ascertain the interest rate and repayment term that align with your budget.

• You prefer not to provide collateral: Most personal loans in Singapore are unsecured, meaning you don't need to pledge assets. This prevents lenders from seizing your property in case of missed payments.

• You require funds quickly: Personal loans are often among the fastest financing solutions. Many lenders in Singapore can approve and disburse funds within a week, and some even within a day or two.

Learn More: How Long Does It Take to Get a Personal Loan or Bank Loan in Singapore?

Back to top

Your financial standing and income are key factors in a personal loan application. Here’s how to qualify for a personal loan and what lenders in Singapore consider.

Financial standing

A strong financial profile and credit score significantly increases your chances of qualifying for a personal loan and securing a lower interest rate in Singapore. 

Lenders often favour borrowers with a good financial standing and a consistent history of on-time payments for loans and credit facilities. While some lenders offer loans to those with less favourable financial standing, they typically come with higher interest rates.

Learn More: Best Loans for Bad Credit in Singapore

Your salary

Your income level plays a crucial role in demonstrating your ability to repay the loan. Lenders in Singapore generally offer lower interest rates to applicants with higher incomes.

You can usually include various income sources, such as employment, freelance work, alimony, child support, or government benefits, in your loan application. Your salary may also determine how much personal loan you can get in Singapore.

Learn More: Best Personal Loans For Low Income Earners In Singapore 2024

Debts accrued

Lenders assess your income against your existing debt obligations to ensure you can manage loan repayments. A high debt-to-income ratio (DTI) might indicate difficulty in meeting payment obligations. If your DTI exceeds 36%, it's advisable to reduce your debt before looking at how to apply for a personal loan in Singapore.

Learn More: Debt-to-Income (DTI) Ratio: How to Calculate Your DTI

Back to top

While many lenders in Singapore offer online personal loan applications, some banks and credit cooperatives may require in-person applications. Here are three steps to secure a personal loan:

1. Review your financial standing: Your financial profile is a key factor in loan applications. Review your credit report for inaccuracies and resolve them before applying. You can access your credit report through Credit Bureau Singapore (CBS).

2. Obtain pre-qualification: Many lenders offer pre-qualification to preview potential rates and terms. This involves a soft credit check, allowing you to compare offers without impacting your financial standing.

3. Submit a formal application: A formal application requires documentation to verify your identity and income. Lenders will perform a hard credit check following this after which, if approved, you can expect funds within a week.

Learn More: How to Get a Personal Loan in 7 Steps, A Singapore Guide

Back to top

As pre-qualification for a personal loan doesn't impact your financial standing, you can explore offers from multiple lenders to secure the best deal in Singapore.

The Annual Percentage Rate (APR) provides a comprehensive comparison tool for determining the most cost-effective personal loan. It encapsulates the total borrowing cost, including interest and any fees, such as origination fees.   

When deciding between two low-rate offers, consider these additional factors:

• Rate reductions: Some lenders offer slight APR reductions for existing customers or those setting up automatic payments.

• Disbursement speed: For urgent financial needs, prioritise lenders with swift approval and disbursement times. Certain lenders offer same-day fund transfers post-approval.

• Customer service: Seek lenders with positive customer reviews and convenient features like flexible repayment plans or mobile apps for loan management.

Learn More: Personal Loan Rates: Compare Top Lenders in Singapore

Back to top