Types of interests charged on personal loans in Singapore


Personal loans are a way to borrow money for personal use, such as a car loan, mortgage, or renovation. 

The interest charged on a personal loan is essential in deciding whether you should get one.

Here’s how banks charge interest on personal loans in Singapore.

Flat Interest Rate

As the name suggests, the interest rate charged on your loan remains fixed throughout the life of your loan.

This means that even if you make additional repayments to clear off a portion of your outstanding balance or pay late without defaulting on payment obligations, there will be no change in the interest rate applied to your due credit.

Conventional Flat Interest Rate

Conventional flat-interest rate loans are those in which the interest rate is fixed throughout the loan tenure. If you take a loan with an interest rate of 4% per year, you will have to pay back the same amount at the end of your repayment period.

Add-On Flat Interest Rate

Another potential option is the add-on flat interest rate. This type of interest is charged to the principal loan amount, and it’s a fixed percentage that does not change over the life of your loan.

An example would be if you took out a personal loan for $100,000 with an annual rate of 2%. 

That means at the end of each year, your outstanding balance is $98,000—the original principal amount plus any interest accrued during the year (total owed = $100k + 2% * 100k).

Reducing Balance Interest Rate

The reduced balance interest rate is charged on the entire loan amount. Your repayments will be applied to paying off the principal before any interest.

As such, you will pay less in interest over time, and you will also pay lower monthly installments as there are fewer interest charges compared to other types of personal loans.

The only drawback to this type of personal loan is that it requires you to repay more than what you have borrowed (if you do not make additional payments).

This could mean that it takes longer for you to clear off your debt if your salary does not increase significantly during the repayment period (or even at all).

This is how banks charge interest on personal loans.

Interest on personal loans is charged in several ways, including:

ANNUAL PERCENTAGE RATE (APR): APR is the interest rate you set over a year. It is calculated by adding all the year’s interest charges and then dividing this figure by 12 to find your monthly rate. APR does not consider any fees you may be charged throughout your loan term.

EFFECTIVE ANNUAL PERCENTAGE RATE (EAPR): This type of interest rate will give you an idea of your monthly payments if you take out a fixed-rate loan over its entire term. For example, say you borrow $500 at 9% per annum for one year; if you made 12 payments throughout that period ($50 every month), then at 9% per annum, it would cost $55.40 each month in total interest charges—$5 more than just paying half upfront—or an equivalent annualized percentage rate (APR) based on those same terms would be 11%.

ANNUALIZED PERCENTAGE RATE (APR): This figure takes into account any fees or other charges which may be associated with securing credit from banks or lenders when applying for personal loans and then computes them into one total amount that must still be paid back after making only one lump sum payment upfront before receiving funds from these sources directly towards repaying the debt owed within specific deadlines set forth by creditors themselves as well as government regulations dictating how much time consumers must have available before making payments due during specified periods around holidays such as Christmas Day itself.


We hope this article has helped you understand the different interest charges on personal loans in Singapore.

We also hope that we have helped you to understand the different types of loans available in Singapore and how much they cost.