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Cost Of Taking Out A Loan: Different Types Of Interest Rates

Different types of interest rates when taking out a loan

Taking up a loan in Singapore? Before you assume that taking a fast loan in Singapore is as straightforward as borrowing a sum of money and then repaying it, think again. A legal loan in Singapore will require you to pay interest and processing fees – this means you’ll have to repay more than what you initially borrowed.

Just like how a licensed moneylender can charge up to 4% in interest per month, other financial institutions can also charge varying amounts of interest on your loan. How much you end up repaying depends on the types of interest rates used and how they are calculated.

Read on to find out the common types of interest rates in Singapore that you need to take note of.

1. Fixed Interest Rate

This is a common type of interest rate used on loans in Singapore. As the name suggests, the interest is fixed throughout the repayment period. The upside for such an interest type is that it does not fluctuate over the loan period hence allowing borrowers to have an accurate estimation of the repayment amount. On the downside, the fixed interest rate is usually higher than the variable interest rate because it is hedged against external factors that might increase the interest over time.

2. Variable Interest Rate

A variable interest rate, also known as floating rate, is an interest that adjusts over time in response to changes in the market. When the underlying benchmark rate or index rises or falls, it affects the variable interest rate paid by the borrower. For example, when it comes to legal home loans in Singapore, the variable rates are usually tagged to Singapore Interbank Offered Rate (SIBOR) or Fixed Home Rate (FHR).

An advantage of such an interest is the possibility of getting a lower rate should the underlying index decline. Conversely, if the underlying index rises, the interest rates might increase too.

3. Simple Interest Rate

A simple interest rate simply means a fixed interest rate of a principal amount to be paid over an agreed period. For example, when a couple decides to take up a S$10,000 fast loan in Singapore to fund their wedding from a licensed moneylender at an interest of 4% and repayable within a month, the interest charged is simply 4% of the loan amount.

The calculation for loans that are based on such rates is very basic and is generally expressed with straightforward multiplication of principal amount, interest rate, and the period agreed.

4. Compound Interest Rate

Compound interest is the addition of interest to the principal sum of a loan when it is not repaid. The methodology is called interest on interest. To understand this, think of a loan balance as two key components – the principal amount and the interest incurred from the loan. The lender will apply the agreed interest on the loan balance and the interest incurred to calculate the subsequent year’s interest payment

To illustrate this, let’s use an example of a S$10,000 loan in Singapore at 10% interest per annum. If the loan is not repaid by the end of the first year, the total amount owed would be S$11,000. At the end of the second year, the new balance would be S$12,100. The S$1,000 of interest incurred in the first year has incurred its own interest of S$100!

While compound interest can be a good thing for earning on deposits, it is not the same if it is used on loans. Compound interests can get expensive for borrowers and when a loan is not well managed, they can end up owing a lot more money than they initially intend to.

5. Effective Interest Rate

An effective interest rate (EIR) is the true cost of taking a loan in Singapore, taking into account the compounding effects over time. The cost depends on how long your loan tenure is and repayment frequency, as well as the number of instalments.

Typically, effective interest rates are higher than advertised interest rates. This is because advertised interest rates only consider the interest you are supposed to be paying. For example, if you are taking a $2,000 loan at 10% p.a. Interest, you are expected to repay $200 in interest annually. But EIR considers other factors such as processing fees, hence you could end up repaying more than that.

6. Reducing Balance Rate

Also known as the diminishing balance rate, the reducing balance rate only charges interest on your loan’s remaining balance. This effectively reduces your interest repayment each month as you continuously pay off your principal loan amount. This is perfect for lengthy loan tenures as you save more over time.

Here is a simple formula for calculating your payable interest following the reducing balance rate:

Interest amount per instalment = Effective interest rate per instalment x Outstanding loan amount

7. Annual Percentage Rate

The Annual Percentage Rate (APR) is an annual rate charged for a loan in Singapore and is widely used for most financial solutions – from mortgages and car loans to credit cards. So how does it work?

Every time you take out a loan, there is a cost involved which is the interest, which ultimately adds up to the total loan cost. Every month, you are essentially paying a portion of the principal loan and a portion of the interest.

Two types of APRs can be applied – fixed and variable. A fixed APR means the rate remains the same throughout the entire loan term, while a variable APR means fluctuations. APRs can change anytime according to market variability and the borrower’s ability to repay on time, however, lenders are required to provide advance notice on the change and why.

The annual percentage rate considers all other borrowing costs such as administrative and late fees, however, it does not account for the compounding effect of interest. So, when looking for a legal loan in Singapore, between two offers that present the same nominal rate and monthly payments, choosing the loan package with a lower APR will usually require lesser upfront fees and offer a better deal.

Conclusion

Understanding the different types of interest rates can be complex, this is why it is important to find a licensed moneylender who can provide reliable advice and competitive rates when you need a loan to fund your projects. At Galaxy Credit, we offer a wide selection of loans such as personal loans and business loans. Contact us for a free consultation now.

Disclaimer

While we try to provide the most accurate information on this website, it may not reflect the most current developments. The information on this website may be changed without notice and is not guaranteed to be complete, correct, or up-to-date. All information provided is for informational purposes only and shall not be relied upon as professional advice. We shall not be liable for any loss or damage resulting from the use of this website.

Related Posts

6 Reasons To Borrow Money From An Authorised Lender in Singapore

6 Reasons To Borrow Money From An Authorised Lender In Singapore

The popularity of local money lenders in Singapore is soaring. However, are these lenders dependable and legit? The answer is YES. There are many benefits of using a legal lender to obtain an instant loan, including accessibility, affordability, and loan security. However, before deciding on which lender to borrow from, keep these factors in mind to choose the right moneylending company.

A legal lender can provide the financial assistance you need, whether it’s because you’ve reached a tough spot in your business, or just need some quick cash for an emergency. In fact, to make it even more convincing, here are six reasons to reach out to a licensed money lender when you’re looking to borrow money in Singapore.

They welcome foreign borrowers

Banks in Singapore tend to exclude foreign money borrowers, especially those who fall under the lower income group. As a foreigner, your chances of receiving an instant loan from a local bank are pretty slim — this is true if you earn an annual income that falls below $40,000.

This is because banks view your financial stability to be highly volatile, hence imposing doubts on your ability to pay. But fortunately, licensed lenders in Singapore have their doors wide open for financially stranded foreigners. Most personal loan companies have specific loan classifications to suit anyone who is not a citizen. The basic requirements for foreigners to qualify for personal loans in Singapore include:

  • A full-time job
  • A valid proof of identity
  • A valid work pass
  • Proof of income for the last 3 months
  • Proof of address

They don’t practice harassment tactics

Ever had a bad experience with loan sharks? Thanks to licensed money lenders, you no longer have to worry about rude, abusive, and violent debt recollection experiences.

Licensed lenders must carry out their activities with utmost professionalism and demeanor. For instance, a legal lender is not allowed to hurl insults and employ harassment tactics to pressure their money borrowers when collecting their payments (or at any point in time).

If you’re unable to repay your loan on time, all you need to do is contact the loan company. A lawful and understanding legal money lender will do their best to help you adjust your repayment plan.

The borrowing process is much faster

Before the inception of licensed personal loan companies, money borrowers would have endured lengthy and rigorous processes to acquire loans. A typical borrowing process would involve seeking loan guarantors, presenting a suitable asset as collateral, and signing an endless list of documents.

Fast forward to today’s day and age, licensed lenders have made it much easier to borrow money in Singapore. The review process, especially document verification, is smoother and faster; hence it is very possible to receive instant cash within a day!

“I need urgent money” — a phrase many of us have thought about before, can now be realised thanks to much quicker loan solutions through licensed lenders.

They can’t go against the loan terms

Thanks to the regulatory body that governs them, licensed lenders must conduct business with ultimate integrity. This means it’s illegal for them to tamper with the loan contract once it’s signed.

Also, Singapore’s government has placed a cap on the maximum interest rate that can be charged. So while this interest rate is bound to vary depending on specific individual factors, it should not surpass 4% per month or 48% per annum.

If and when a loan official tries to force upon you a loan contract that contradicts what you had initially signed, you can call 1800-722-6688 — a special hotline set aside by the Police and National Crime Prevention Council for victims to report crime-related information.

They have a physical business address

If you have doubts about a licensed lender in Singapore, you can always visit their physical office for further clarifications. Legal loan companies must have their borrowers sign off on the loan contracts physically in person. This makes it much easier to track down the loan officials in case you feel like it’s a scam. Physical presence also reinforces the credibility of any lender and sets them apart from loan sharks.

The Registry of Moneylenders regulates them

Another reason to borrow money from a licensed money lender is they don’t operate independently. The Registry of Moneylenders acts as a watchdog that defines the scope of operation for lending businesses.

As a result, you’re assured of the government’s protection if anything goes wrong. It doesn’t matter what your income status is, where you work, or whether you’re a citizen or a foreigner, any unfair treatment from a licensed lender can be investigated or battled out in court. After all, signed loan contracts are mutually and legally binding!

Due to the strict government regulations, you are unlikely to run into any legal issues with licensed lenders in Singapore.

Bonus: 4 Tips To Borrow Money Safely From An Authorised Money Lender

Tip 1: Find a licensed lender in Singapore

Before approaching a money lender, the most important thing you have to do is make sure you are dealing with a licensed lender. The way to determine that is by browsing a list of licensed money lenders on the Ministry of Law’s website and verifying your choice. Registered money lenders in Singapore have to abide by regulations set forth by the Ministry of Law that protects both the money borrower and lender. If you are unsure, you can always refer to the FAQ list or contact them for enquiries.

Tip 2: Identify the right loans that match your budget

When you apply for a loan, always determine the purpose and need for it. Make a plan of how many loans you need, how much you need and when you need them. Personal loans are a flexible and accessible option for people looking to fund various purposes such as paying off high-interest credit card bills, medical expenses, and so on. Identifying the right loans can help you stay objective and use them wisely to pay off your existing debts or to bridge a temporary financial gap.

On top of that, you will need to calculate your monthly budget to see what you can actually afford. While personal loans are commonly packaged with low-interest rates, your budget will help determine how much you can borrow within your means and if you can repay them on time. The smaller your loan and the shorter your repayment period, the less interest you have to pay. Understanding this simple tip can help you avoid taking on a larger loan and staying in debt for a longer period.

Tip 3: What a registered lender must inform you before granting a loan

Before approving loans, the money lender is required to inform the borrower in writing, the full terms of the loan, including:

  • Nominal interest rates
  • Late interest charges
  • Other permitted fees
  • Instalment details, especially in cases where there is a fixed repayment period agreement between both parties, also known as a term loan

Tip 4: Choose a licensed lender you can trust

Now that you know the types of loans you need and the budget you have, it is time to research quotes from different money lenders. One thing you should look out for when discussing loan terms is the interest rate*. Based on the Moneylenders Act, a legal lender in Singapore can only charge a maximum interest rate of 4% monthly as per the borrowed loan amount or late interest from a delayed payment.

*Calculation of the interest charges should be done according to the monthly outstanding balance of the principal loan amount remaining after minusing off the payments done.

For instance, if your loan amount is $20,000 and you have already paid $10,000, then the 4% interest rate should only be computed for the remaining $10,000.

A legal lender can also charge other fees like late fees or legal charges incurred to recover loans if the borrower is unable to make repayment.

Do look out for some shady practices that a licensed lender in Singapore is not allowed to engage in:

  • Using abusive or threatening language
  • Fishing for your SingPass ID or password
  • Failing to return your important personal identification documents such as NRIC and passport
  • Asking you to sign a blank or incomplete contract for the loan
  • Approving your loan without explaining the terms in detail
  • Failing to provide you with a copy of your loan contract
  • Soliciting loans via text messages and phone calls

Should you borrow money from a licensed lender in Singapore?

Although there are a few options to consider when you need urgent money, licensed money lenders are still one of the best sources to borrow money from. For starters, they are thoroughly legal.

Feel free to talk to Galaxy Credit, a licensed Ang Mo Kio money lender, about your financial needs. From payday loans, study loans, to wedding loans — we offer different loans for different purposes. Simply get in touch with us and our friendly loan officer will provide assistance to you in a jiffy!

3 Things To Know When Choosing A Moneylending Company

3 Things To Know When Choosing A Moneylending Company

Besides banks, a moneylending company is a specific financial service provider that will lend you money based on your income and credit history. If you are looking for a loan, then moneylending companies are good options to consider.

However, it is important to note that a moneylending company will have relatively high interest rates, but it will be able to provide you with the necessary funds based on your monthly income.

As with all other personal loan applications, a licensed money lender needs to go through a processing and approval time frame but the good news is you can apply for a loan online and it’s a relatively easy process. Besides personal loans, a moneylending company in Singapore also provides business loans. But do your due diligence and ensure you are signing up only with the best licensed money lenders.

Loan amount

The loan amount you can obtain from a moneylending company will depend on your monthly income and credit history, although the latter isn’t as important compared to if you were to apply for a bank loan. A moneylending company offers various loans with different purposes to consider and they come with their respective loan amounts.

The typical loan limit can amount to six times your monthly salary. Therefore, when you apply for a loan, make sure that the loan you choose is based on your financial situation and needs.

If you would like to check your credit report, you can get a copy from the Credit Bureau Singapore. You can also read our post for more information on obtaining your credit report.

Repayment period

The repayment period will depend on the type of loan that you have applied for. Short-term loans may have repayment periods of up to three months, while long-term loans may have repayment periods of up to 12 months.

It is important to note that if you’re seeking a relatively lower interest rate, you could look for a smaller loan with a longer repayment period.

Interest Rate

The interest rate charged by a moneylending company in Singapore will depend on the type of loan that you choose. It is important to note that there are personal loans and business loans, and both types of loans will have different interest rates. Also, interest rates for short-term loans will be higher than for long-term loans. Therefore, if you would like to save as much money as possible per month, consider applying for a long-term loan. For example, the interest rate of a long-term loan can be as low as 1% per month while that for a short-term loan is usually in the range of 3-4% per month.

Finally, remember that if you would like a low-interest rate on the loan, you must ensure that you have a good credit history and high income.

Do also ensure that you know the interest rate and repayment period for each type of loan. This will help you to decide on the best loan for your needs, as well as the most suitable moneylending company to get a loan from.

With these three things in min/d, you can now decide on a moneylending company in Singapore. Galaxy Credit offers one of the best personal loans with relatively low-interest rates and specialises in payday loans, study loans to further your studies, and debt consolidation services. Speak to our loan officers today and receive a free consultation on how to better manage your finances.

Woman applying for a loan and looking for the lowest personal loan rates in Singapore

Guide To Getting The Lowest Personal Loan Rates

With the economic impact of COVID-19, it is common for affected individuals experiencing loss of income to start seeking financial assistance such as securing personal loans with the lowest rates. If you happen to need emergency funds but do not want to borrow from friends or family, you can consider taking up a personal loan.

Here are a few questions to consider before applying for one.

What are the requirements for a personal loan?

If you are looking to secure a personal loan from banks in Singapore, you have to take note of the requirements for eligibility.

Firstly, you have to be at least 21 years old with an annual income of at least S$20,000 a year. If you are a foreigner (with an employment pass of at least 12 months validity), you will need an income range of S$40,000 to S$60,000 a year. If you make much more than $30,000 a year, banks might extend lower interest fees to you.

The requirements to borrow from a licensed moneylender is pretty straightforward. All you need is the application form (which you can fill up online), plus other supporting documents that may include:

  • Proof of the borrower’s total income for the preceding 3 months prior to loan application
  • Utilities bills
  • Pay slips; or Income tax statements

And possible supporting documents for foreigners:

  • Original valid employment pass
  • Passport
  • Appointment letters from the borrower’s employer; and
  • Bank statements

How much can you borrow according to your income bracket?

If you are choosing to secure a personal loan from a licensed money lender instead, the maximum amount that you can borrow depends on your annual income. Based on the Ministry of Law’s guide to borrowing from money lenders, for Singapore citizens and PR, If your annual income is below S$10,000, then you can only borrow up to S$3,000. If you’re a foreigner, S$500.

If your annual income is between S$10,000 to S$20,000, the maximum amount you can borrow is S$3,000 for Singapore citizens/PR and foreigners residing in Singapore.

If your annual income is over S$20,000, then you can borrow up to 6 times your monthly income for both Singapore citizens/PR and foreigners residing in Singapore.

Here’s a summary of the annual income and maximum loan amount for each income bracket:

Annual Income For Singapore Citizens and Permanent Resident Foreigners residing in Singapore
< $10,000 $3000 $500
$10,001 – $20,000 $3000
> $20,000 6 times of monthly income

Understanding personal loan interest rates

Lenders make their decisions based on factors including credit records and other existing credit facilities. To get the lowest personal loan rates, you need to build a strong credit report. Borrowers with high credit scores tend to get personal loan interest rates that are low.

When borrowing personal loans from banks in Singapore, they will typically label their interest rates as x%, which stands for a customised interest rate that you would only see once your application is approved. The interest rate is usually dependent on your credit score, loan amount, and your loan tenure. What you should be looking at is the effective interest rates or EIR as it includes processing fees and your loan repayment schedule, which is a true reflection of the cost of the loan.

When borrowing personal loans from licensed money lenders in Singapore, the money lender has to go through the terms and conditions of your loan such as repayment schedule, late fees, and interest charges before you sign the contract. A loan contract stating all the terms and conditions is required by law. The difference between signing up with licensed money lenders as opposed to banks is the quick turnaround time to get your funds, which can be as fast as an hour.

How to maintain my credit score?

An infographic explaining how personal loan interest rates work in summarised points

Maintaining a good credit score is part and parcel of getting the lowest personal loan rates. Banks and other financial institutions can offer a lower interest rate for a loan if your credit score is high. Credit scores are indicators of creditworthiness or the indication of the likelihood of a borrower paying their debt on time.

A great way to maintain it is to pay all your credit card bills and loans on time and in full. Also, refrain from applying for multiple loans at the same time from various money lenders as this will lower your overall credit score and increase your debt threshold.

Once you have a good credit score, you can leverage this as a way to get low-interest rates for your future loans. You can find out more about your credit report and rating from the Credit Bureau Singapore or Singpost branches at a $6.42 inclusive of GST.

Looking for low personal loan interest rates in Singapore? Find out more about your legal loan options with Galaxy Credit today.

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GALAXY CREDIT

Galaxy Credit & Investments Pte Ltd leverage on the expertise to offer a set of realistic loan solutions that help you alleviate your financial liabilities whether it is personal or business. 

License Number 152/2023

SERVICES

  • Personal Loan
  • Payday Loan
  • Business Loan
  • Debt Consolidation Loan

ADDRESS

Blk 709 Ang Mo Kio Ave 8, Ang Mo Kio Central, #01-2595 (4 minutes Walk From Amk MRT) Singapore 560709

6250 8811

OPENING HOURS

Opening Hours

Monday – Saturday 11am to 7.30pm
Closed on Sunday and Public Holidays

Copyright © 2024 | Galaxy Credit & Investments Pte Ltd | Singapore Licensed Moneylender | Privacy Policy

GALAXY CREDIT

6250 8811

Copyright © 2024 | Galaxy Credit & Investments Pte Ltd | Singapore Licensed Moneylender | Privacy Policy

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