Interest-free Loan Singapore: What Is The Real Cost Of It?

It seems too good to be true: get a large sum of money today and pay it back slowly at no interest. Is an interest-free loan in Singapore actually that simple and convenient? In this post, we take a closer look at the real cost of a zero-interest loan in Singapore.

It covers how to know if you are eligible and how you can make sure you are paying the lowest personal loan rates.

What is an interest-free loan?

With a typical loan, the lender gives the borrower a lump sum of cash and the borrower pays its value plus interest over time. The interest is the price the lender charges for providing you with convenience.

With an interest-free loan in Singapore, the borrower pays back the principal over time without any interest. On the surface, it seems that there is no advantage for the lender to do this. However, there is a catch.

With personal loan interest rates at zero, an interest-free loan in Singapore comes with a lot of fine print. The price for breaking any of those clauses can be higher than the interest on a regular loan in Singapore. So, a lender can make more money off an interest-free loan.

The cost of an interest-free loan

Interest is not the only additional cost when you take a loan. Two types of charges can add to the total amount that a borrower has to pay.

Preset charges

These are administrative charges that are common to virtually all loans. There may be some charges that apply only to interest-free loans as well. Preset charges may be prepaid when your loan is approved by the licensed moneylender in Singapore or they may be added to your monthly instalments. These charges include:

• Origination fee
• Processing fee

Penalties

These are punitive charges that are applied if the borrower fails to meet the terms for an interest-free loan in Singapore. They include:

• Late payment fees
• Missed payment fees
• Administrative fees for processing late or missed payments

Note: Not all loans come with any or all of these preset charges and/or penalties. Please refer to the loan contract and your loan executive for a detailed list of charges and their conditions.

Interest

Yes, you may have to pay interest on an interest-free loan. This happens when you break one of the conditions in the contract that comes with a penalty.

Some of those conditions also attract deferred interest. This is applied retroactively, meaning that you will have to pay interest on previous instalments that you paid in full and on time. Together, these charges can add up to significantly more than the interest on a regular loan.

Always read the fine print carefully to know the possible consequences.

Is an interest-free loan right for you?

Strange as it may seem, an interest-free loan in Singapore is not the best idea for everyone. The main reason is that there are severe consequences of not being able to pay instalments on time. Before you apply, consider these factors:

Do you have a steady income?

You should earn enough to cover the instalments as well as any emergency expenses that may arise.

Do you have the ability to avoid the temptation to spend on other things?

It doesn’t matter that you earn enough to cover loan instalments if you squander your money on unnecessary expenses.

Do you have the discipline to make payments on time?

The loan term can run into years and the consequences of defaulting on the last payment of an interest-free loan in Singapore are just as bad as defaulting on the first one.

How to get an interest-free loan

Personal loan interest rates are always changing and so are the qualification criteria. This can make it difficult to apply for a loan in Singapore. To get the lowest personal loan rates of 0%, an applicant has to satisfy some basic conditions:

1. Maintain a good credit score

Most lenders will check your credit score before they approve your loan. A good credit score within the AA to BB range indicates that you are a reliable borrower.

2. Don’t default

Late payments and defaults on previous loans raise red flags on your application. A lender is less likely to loan you money if they fear that you will not repay them.

3. Be employed

Salary is not very important if you want to get a loan in Singapore but constant employment is. If you have always had a job, even if it is casual or part-time, a lender is more likely to give you an interest-free loan in Singapore.

At Galaxy Credit, we assess each application individually according to your circumstances. You may be eligible for 0% personal loan interest rates even if you don’t satisfy all these criteria. Contact us today for a personalised quote.