The interest rate is the one single factor that will determine if you will take a loan from any institution in Singapore. Whether it is a licensed moneylender, an illegal money lender, a bank or a financial institution, you must know what the interest rate before you sign the dotted lines.
Loan Repayment Terms
Among the issues that you should be aware of when you borrow money include:
- Minimum Period for Repayment: From 1.5 months (6 weeks)
- Maximum Period for Repayment Up to 5 years
- Minimum Annual Percentage Rate From 1.20% per annum
- Maximum Annual Percentage Rate Up to 48% per annum on reducing interest rate
Below is a sample of Representation of Loan when borrowed at the Maximum Rate:
- Total Loan Amount Borrowed SGD 10,000
- Time Period * 12 Months
- Interest Rate ** 1% Per Month
- Annual Percentage Rate of Charge (APR) ** 12% APR or 1% NIR
- Total Cost Payable Per Annual *** (Excluding Loan Principle) SGD 1,200
- Time period is calculated from the minimum period of 2 months to the maximum period of 12 months.
- Interest Rates will usually vary. It could be up to 4% per month which is dependent on the total amount borrowed and the term of repayment
- The Total Cost Payable does not include administrative fees. The cost stated here is an approximate amount and would vary based on the amount borrowed, the period of duration and any other fees that might be involved like late charges, service charges, etc.
Crucial Information about Interest Rates
You must know how interest rates work. It is no secret that banks and money lenders make money from interest rates. This means that given a choice, they will charge as high an interest rate as possible and for the longest time they can. The idea is to ensure that they make as much money from you as possible. As long as you are their customer, they are earning a profit. However, this does not mean that you are now stuck with high-interest rates in the market. It is very competitive in the market now which means that you have many to choose from. In fact, you should shop and compare a few banks and money lenders and decide based on the lowest interest rate (and if can, the shortest time).
Home Loans to suit all your needs
When it comes to Home Loans, you will need to find the one with as low as you can find. In most cases, home loans are unsecured loans because they depend on the floating rate in the market. Banks usually offer a certain percentage which will then be added into the floating rate in the market which means you will pay a different percentage each year. However, the floating rate does not fluctuate that much every year unless there is a major shakeup in the economy. Hence, there is not much to be overly concerned about. Home loans usually is about 2-3% per annum.
Personal Loan Interest Rates
Personal loans are very straightforward loans. They are in their own ways secured loans. When you apply for a personal loan, you will be given a fixed interest rate which at the moment is about 5% and above. That means, if you apply for a personal loan for 5 years, the interest rate which has been agreed will be used for the whole duration regardless of what the market situation is throughout. In the next 5 years, the bank might offer higher interest rates for the same loan but it will not affect you in any way as it will honor the rate agreed during the confirmation.
Interest Rates from Registered Money Lenders
Singapore has a very large network of money lenders who are registered with the Ministry of Law. This means that you can actually find these parties and borrow money from them at a pre-agreed term and interest rate. Because the money lenders are registered with the government of Singapore, they have certain obligations to follow. Such guidelines are put in place to protect them and you as well. Take note that they are not allowed to charge any interest rate they like. The law stipulates that they can only impose interest rates between 12 to 18% per annum.
Illegal Money Lenders – Extremely High-Interest Rates
This should NOT be your option at all but you must know how they work. Illegal money lenders are not registered with any ministry. In fact, they are often called ‘Ah Longs’ or ‘Loan Sharks’. In 2017 alone, there were more than 3,800 unlicensed money lending and harassment cases reported. This is in sharp contrast to 2016 when there were only about 3,300 such cases. With interest rates as high as 25% (charged monthly or weekly at times), you can be sure to pay through your teeth if you borrow from them. Although most will tell you that it is no problem as long as you pay on time, the interest rates increase exponentially if you default any payment. This is made more difficult if they start harassing you. The only reason why people borrow from loan sharks is that they give easy loans without much documentation. It is the aftermath that will put you in a lot of trouble. Remember, their interest rates are always significantly higher than any banks or registered money lenders in Singapore.