How to compare Personal Loan?

While applying for Personal Loan in Singapore, you need to know about the types of loans available so that you could make the right choice. It is suggested to make a comparative study of the loan types to identify the one that brings in more benefits. Here is an insight for you on two packages offered by banks and financial institutions when you apply for a personal loan.

Package 1:

Rate of Interest = 5%
Maximum Personal Loan Offered = Monthly Income x 4

Other Charges:
Admin Fee  = 1.5%
Insurance Fee = 1.5%

If your monthly income is $3000, you will be eligible for personal loan up to $12000. Let us say you opt for 5 years loan term for an interest rate of 5%

Yearly Interest                        = 5%
Interest for 5 years                  = 25% (5% x 5 years)
Total Interest Amount (5 yrs) = $3000 ($12000 x 25%)

Now, let us calculate the monthly instalment:

Personal Loan                       = $12000
Total Interest Paid in 5 yrs    = $3000
Loan Term                            = 5 years = 60 months
Monthly Instalment              = $250 {(Personal Loan + Total Interest)/Loan Term} = {($12000+$3000)/60}

Though the personal loan amount is $12000, the bank will be deducting 1.5% admin charges and 1.5% insurance fee.
Hence, we will deduct the same to arrive at the personal loan amount you will have on hand.

1.5% admin fee on $12000       = $180
1.5% insurance fee on $12000  = $180

Personal loan amount after deducting the charges = $11640

Package 2:

Rate of Interest                              = 8%
Maximum Personal Loan Offered = Monthly Income x 4

Other Charges:

Admin Fee                                     = Nil
Insurance Fee                                 = Nil

If your monthly income is $3000, you will be eligible for personal loan up to $12000. Under this package, let us say you opt for 5 years loan term. The rate of interest would be 8%

Yearly Interest                        = 8%
Interest for 5 years                  = 40% (8% x 5 years)
Total Interest Amount (5 yrs) = $4800 ($12000 x 40%)

Now, let us calculate the monthly instalment under this package:

Personal Loan                       = $12000
Total Interest Paid in 5 yrs    = $4800
Loan Term                            = 5 years = 60 months
Monthly Instalment              = $280 {(Personal Loan + Total Interest)/Loan Term} = {($12000+$4800)/60}

Since there are no additional charges, you will be getting full loan amount on hand.

Let us do a comparison of Personal Loan Package 1 and Package 2:

Package 1:

Total interest paid + Admin fee + Insurance fee = $3000 + $180 + $180 = $3360

Package 2:

Total interest paid + Admin fee + Insurance fee = $4800 + $0 + $0 = $4800

Package 2 is promoted by banks and financial institutions for effectively marketing their services, as they would sound attractive to prospective borrowers. When you hear that admin fee and insurance fee are waived, you are naturally attracted to package 2. However, a detailed calculation brings to light that package 1 is the most beneficial offer as you save money in spite of shelling out for additional charges.

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