Confused about personal loan interest rates? Learn about key terms like interest rate, Annual Percentage Rate (APR), and Effective Interest Rate (EIR) with Friday Finance's simple guide. Discover how understanding these terms can help you make informed decisions and secure the best loan for your needs.Principal interest. Annual percentage rate. Debt service ratio. If these sound alien to you, don't worry - most Singaporeans don't understand these personal loan jargons as well.
Understanding personal loan terms, especially interest rates can be tricky, but they shouldn't be.
Many money lenders out there might confuse you with technical terms around interest rates. This can be overwhelming at best and misleading at worst - both may lead to bad decisions when choosing a personal loan!
We at Friday Finance believe in helping you achieve financial wellness safely and securely. That means giving you the knowledge and confidence to make well-informed decisions and obtain a loan in the best standing possible.
So here's a simple guide on how to figure out your personal loan's interest rates and how to use it to your best advantage.
While the basic interest rate is very familiar to most, it can take a different spin when personal loans are involved in Singapore. Here are a few of the ones you would see:
This is the simplest to understand, but this term can be easily confusing when thrown into various forms as you will see later.
On its most basic level (which can also be called Basic Interest Rate), it is simply a percentage that's charged to the loan amount you're taking.
For example, a loan of $1,000 with an interest rate of 5% will result in an extra $50 to be payable by the borrower to the lender on top of the $1,000 loan (which is also called the principal).
When a loan tenor is taken into account, there will be terms such as the annual percentage rates (or sometimes a monthly interest rate if the loan tenor is less than a year).
Simply put, it's the interest that a borrower will be charged based on the agreed repayment timeline with the lender.
For example, a loan of $12,000 to be repaid in 1 year with an interest rate of 10% per annum will result in $1,200 of interest to be payable.
However, the same loan of $12,000 for a repayment period of 2 years with an interest rate of 10% per annum will result in $2,400 of interest,
While this is a general guide to APR, do note that some lenders employ a "reducing interest basis", where the amount of interest reduces after each repayment as they charge on the reduced principal after every payment!
This shows the real and final interest rate of your loan should you choose to take it.
This takes into account processing fees, admin fees and more importantly, the duration of your loan tenor.
Because of this, financial institutions in Singapore are legally required to state the effective interest rate next to the offered rates - so keep an eye out for EIR when you're considering a personal loan!
We understand that grasping the ins and outs of personal loans and their numerous terms can be stressful and challenging.
Our goal at Friday Finance is simple - to give you amazing prices, service convenience and financial wellness in the safest and most secure manner.
With interest rates as low as 1% a month, a flexible repayment plan, loan insurance and on-time repayment rewards, taking a personal loan should be a like Friday, stress-free experience.
