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It's always best to save and pay for your holiday in full. But if you don't have the cash at hand, funding your holiday with a personal loan will save you more money than using your credit card.
Personal loan are repaid in fixed monthly instalments, making it easier for you to manage your cash flow around your loan. Of all the forms of unsecured credit, personal loans have the lowest interest rates that start at 4.5% p.a. and rarely go higher than 20% p.a.
A credit card, on the other hand, must be repaid in full by the due date. If you carry over a balance, you have to pay a higher interest rate of around 25% p.a. and late fees.
Do note that you need to borrow at least S$1,000 to qualify for a personal loan in Singapore. If you don' t need to borrow this much for your holiday, consider getting a line of credit instead.
The first major risk of getting a personal loan for your holiday is missing your monthly payment. If you don' t make space in your budget for your monthly payments, you may have to pay late fees and your credit score will take a hit.
The second risk has to do with your Debt Servicing Ratio (DSR). If you are planning to buy your first flat, getting a personal loan can decrease your chances of getting a mortgage. That's because getting loans will lower your DSR - a figure that measures your debt obligations against your income. Ideally, your outstanding debts (including your mortgage) must not be greater than 60% of your income. So unless you are willing to put off buying your first HDB flat until your debts have been cleared, you may want to rethink getting a personal loan to fund your holiday.
The best personal loan for your holiday is the one with the lowest interest rate. By finding a low-interest loan, you save yourself a lot of money on interest payments.
Besides comparing interest rates, see if you can also find a loan with processing fee waivers, promotional rates, and other welcome offers that will lighten the load of your monthly repayments. You can use SingSaver.com.sg to compare loans and spot the ones with the best offers.
Your personal loan, once approved, will be disbursed to a bank account of your choice. Once transferred, the money will remain in your bank account until you u'se it to pay for other expenses, or to start paying the monthly installments.
You should allow up to 3 weeks for your loan application to be processed. Having said that, once you've decided on your holiday, you should go ahead and apply for the loan. As you need to pay for your flight and hotel room upon booking, it would be best to have the funds available as early as possible. This way, you can take advantage of any flash sales or limited time promotions and save money on your trip.
If you change your plans after the loan amount has been deposited in your bank account, there are several options available to you. For one, you may choose to use the money for other financial needs, such as clearing credit card debts, or to meet other pressing expenses.
Another option could be to leave the loan amount in your bank account, and use it to pay the monthly installments over the course of the loan tenor. This way, you do not need to make adjustments to your cashflow to accommodate the loan repayments.
A third option would be to repay the loan early. Note that doing so will attract early repayment fees, which can be a few hundred dollars, or a percentage of the loan amount. Make sure to clarify on early repayment and other fees before you take up the loan.
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