Loan Terms Explained: A Singaporean’s Guide to Financial Jargon
When you’re looking for a loan in Singapore, the terminology can feel overwhelming. Let’s break down the essential terms you’ll encounter in your borrowing journey, making it easier to make informed decisions about your finances.
Essential Loan Terms Every Borrower Should Know
Principal Amount
What it means: The initial amount you borrow
In simple terms: If you take a loan for $5,000, that’s your principal amount. This is the base sum you’ll need to repay, regardless of interest charges.
Interest Rate
What it means: The cost of borrowing, usually expressed as a percentage
In simple terms: If your loan has a 6% annual interest rate, you’ll pay $6 for every $100 borrowed per year.
Types of interest rates you might encounter:
- Flat rate: Interest calculated based on the original principal
- Effective Interest Rate (EIR): The actual cost of borrowing when considering all fees and compounding effects
- Monthly rest: Interest calculated based on your outstanding balance each month
Loan Tenure
What it means: The duration for repaying your loan
In simple terms: A 12-month tenure means you have one year to repay the loan through regular installments.
Monthly Installment
What it means: Your regular monthly repayment amount
In simple terms: If your monthly installment is $500, that’s what you’ll need to pay each month, typically including both principal and interest.
Understanding Fees and Charges
Processing Fee
What it means: A one-time fee for handling your loan application
In simple terms: If there’s a 2% processing fee on a $10,000 loan, you’ll pay $200 upfront.
Late Payment Fee
What it means: Charges applied when you miss a payment deadline
In simple terms: Being late on your payment might cost you $80 per instance (varies by lender).
Important Terms for Loan Eligibility
Credit Score
What it means: A number indicating your creditworthiness based on your credit history
In simple terms: Your CBS (Credit Bureau Singapore) score ranges from 1000 to 2000; higher scores typically mean better loan terms.
Debt-to-Income Ratio
What it means: The percentage of your monthly income that goes towards debt payments
In simple terms: If you earn $5,000 monthly and your total loan payments are $2,000, your debt-to-income ratio is 40%.
Red Flag Terms to Watch For
Hidden Charges
What to look for: Terms like “administrative fees,” “facility fees,” or “annual fees”
Pro tip: Always ask for a complete breakdown of all charges before signing.
Making Smart Borrowing Decisions
Tips for Reading Your Loan Contract:
- Look for the EIR (Effective Interest Rate)
- Check all fees and charges
- Understand the late payment consequences
- Review the early settlement terms
- Note any clauses about interest rate changes
Questions to Ask Your Lender:
- What is the total amount I will repay?
- Are there any additional fees not mentioned in the primary terms?
- What happens if I miss a payment?
- Can I make early repayments without penalties?
The Bottom Line
Understanding loan terms isn’t just about knowing definitions – it’s about making better financial decisions. At Credible.sg, we believe in transparency and ensuring our borrowers fully understand their loan terms. If you’re ever unsure about any term or condition, don’t hesitate to ask for clarification.
Need More Help?
Contact our friendly team at Credible.sg for personalized assistance in understanding loan terms and finding the right financing solution for your needs.
Last updated: November 2024