Taking out a loan is a significant financial decision that can impact your future. You might need funds for debt consolidation, emergencies, or major life events. In Singapore’s dynamic financial landscape, it’s crucial to choose loans carefully and understand your options. Flashy advertisements and urgent needs may sway you, but every loan has conditions that can shape your financial well-being for years. With so many loan types, interest rates, and terms to review, finding the right fit can feel daunting. You don’t have to face it alone.
In this blog, we’ll bring you answers to the most pressing questions about personal loans, helping you gain a clearer understanding of how to evaluate whether a personal loan is truly the right option for your specific circumstances.

1. What should I look for when reading the fine print of a personal loan?

Loan documents can be full of tricky words that make it hard to spot extra costs. When you check a loan agreement, look out for:
  • Interest rate – Is it fixed or can it change? This affects how much you pay back.
  • Processing or admin fees – These upfront charges add to your total cost.
  • Late payment fees – Extra charges if you miss a payment.
  • Early repayment fees – Some lenders charge you if you pay off your loan early.
  • Loan period – A longer loan means you pay more interest overall.
  • Collateral – Do you need to use your property or something else as security?
Don’t sign until you understand all these points. If you’re unsure, ask your lender or a financial advisor for help.

2. How do I know if taking a personal loan is better than using my savings?

Deciding between borrowing and using your savings can be difficult. Here are tips to help you assess your choices:
  • Compare interest costs and savings returns: If your loan interest is low while your savings earn more, borrowing could be beneficial. But if loan interest is high, it may be wiser to use your savings.
  • Protect your emergency fund: Try to keep at least three to six months’ worth of expenses in savings for emergencies. Avoid using up these funds for regular expenses.
  • Think about opportunity cost: Using your savings means you might miss out on future growth or benefits from higher-interest accounts.
  • Consider urgency and purpose: Loans can help cover urgent or short-term needs while keeping savings intact. For smaller, non-urgent costs, using savings might be safer and simpler.
In the end, aim for what keeps your finances healthy and gives you peace of mind.

3. What are the main differences between personal loan types available in Singapore?

Multiple loan types exist in Singapore, each tailored to different needs and risk tolerance. Here’s an overview:
  • Secured vs. unsecured loans: Secured loans require you to use something valuable (like your house or car) as collateral, which is a way for the lender to claim your asset if you can’t repay. They usually come with lower interest rates but carry the risk of losing your asset. Unsecured loans don’t need collateral, but their interest rates are often higher because there’s no asset backing them.
  • Fixed vs. variable interest rates: Fixed rates stay the same throughout your loan, giving you steady monthly payments. Variable (also known as floating) rates can change with the market, so your payments might go up or down over time.
  • Tenure options: The loan tenure is the agreed number of months or years you have to repay the full amount. Shorter tenures mean higher monthly payments but less interest paid overall. Longer tenures lower your monthly amount but cost more in total interest.
Choose a loan type that matches your ability to repay and your comfort with risk.

4. When is it advisable to consolidate debt with a personal loan?

Debt consolidation is when you combine several high-interest debts into a single loan—ideally with a lower interest rate. This makes payments easier to manage and may help you save on interest, as long as you stick to your new repayment plan.
However, beware of longer repayment periods, which may lead to higher overall interest, and be mindful of extra fees. Debt consolidation is most effective if you commit to repaying your new loan and avoid accumulating more debt.

5. How can I improve my chances of loan approval?

Every lender is a little different, but there are some tips to boost your chances of loan approval:
  • Credit score: Make prompt payments and correct any errors on your credit report to demonstrate reliability.
  • Stable income: Prepare proof of current income, as lenders want evidence that you can manage payments.
  • Debt-to-income ratio: Aim to keep your existing debts low before applying for another loan.
  • Documentation: Gather all paperwork and double-check for accuracy to prevent delays.
  • Limit applications: Avoid applying for too many loans at once, as this can lower your credit score.
  • Professional advice: If you’re unsure, a financial adviser can help you get your profile in top shape.

6. What are the risks of taking a personal loan, and how can I manage them?

Taking a loan without a plan can create future problems. Only borrow what you truly need, so you avoid unnecessary financial stress. Be aware that missing payments—especially in unexpected situations—incurs penalties and damages your credit score, making future borrowing more difficult and expensive.
Here are some ways to manage loan risks:
  • Make a budget that covers your loan repayments.
  • Check if loan protection insurance is available.
  • Keep an emergency fund for life’s surprises.
  • If you have trouble repaying, contact your lender early. They may help you reschedule payments.

7. How do changes in interest rates affect my loan repayments, and what should I watch for?

Interest rates in Singapore often go up or down based on global trends and government policies. This mainly affects loans with variable rates.
  • Floating interest rates: These are rates that change over time with the market. Your monthly repayments can go up if market rates rise, which might affect your cash flow. On the bright side, your payments could also go down if rates fall.
  • Fixed interest rates: These give you repayment stability so you always know what to expect, no matter what happens in the market. However, fixed rates can start a bit higher because lenders want some security.
To stay on top of things, make sure you fully understand your loan’s interest rate terms. Try to plan your budget for both current and possible future repayments, especially if rates might increase.

8. How can I realistically create a repayment plan that fits my budget?

Making a realistic repayment plan is the key to stress-free loan management. Here’s how to do it:
  • List all your income and must-have expenses—think rent, food, utilities, insurance, and so on.
  • Work out your disposable income. This is what’s left after covering your essentials, and it should easily cover your loan repayments.
  • Decide ahead how much of your income goes to repayments—try to keep it between 30-40% so you don’t overstretch yourself.
  • Set up automated payments or reminders so you never miss a due date or get hit with penalties.
  • Check your budget regularly and adjust if things change. Life happens, so it’s good to stay flexible.
  • Skip impulse borrowing. Only take out loans with a clear purpose and a plan for paying them back.
A solid repayment plan keeps your finances healthy and gives you peace of mind.

Conclusion

Deciding on a personal loan is a big step, so take time to review your options and understand the terms. Compare interest rates, check your financial situation, and think about using savings or government help if it makes sense. The right choice is one that fits your goals and keeps your finances healthy.
If you’re unsure, don’t wait—reach out to Avis Credit today for trusted guidance. Let’s work together to create a repayment plan that fits your life, ensuring your loan truly supports your goals. Take the first step toward financial confidence and contact us now.