In Singapore, both personal loans and credit cards are widely used financial tools, each with its own advantages. Credit cards excel in convenience and short-term borrowing, while personal loans are often preferred for larger, planned expenses. Yet, many consumers overlook the fact that in certain situations—especially when dealing with high costs or ongoing repayments—a personal loan may be the smarter choice.
While a credit card can offer reward points, cashback, and quick access to funds, its high interest rates can make long-term borrowing very expensive. Personal loans, on the other hand, are typically designed for structured repayments with lower interest charges, which can lead to significant savings and better debt management.
For Singaporeans navigating the rising costs of living, from home renovations to medical expenses, understanding the benefits of personal loans over credit cards is essential. Below, we explore four key ways personal loans can be better than credit cards, complete with local examples and practical tips.
1. Lower Interest Rates – Long-Term Savings
One of the most compelling advantages of personal loans in Singapore is the significantly lower interest rate compared to credit cards.
Interest Rate Comparison in Singapore
- Credit cards: Most banks in Singapore charge between 24% to 28% per annum (p.a.) on unpaid balances.
- Personal loans: Depending on your creditworthiness, loan amount, and tenure, rates typically range from 3% to 8% p.a. (effective interest rate 6% to 15%).
That means if you borrow S$10,000 and repay it over three years, you could pay thousands of dollars less in interest with a personal loan than if you left the same amount as a revolving credit card balance.
Example Scenario
Imagine you have to fund a S$15,000 home renovation.
- Using a credit card: Even with a minimum monthly payment, interest compounds quickly. If you only pay the minimum, you could end up paying over S$10,000 in interest by the time the debt is cleared.
- Using a personal loan: With a 6% p.a. effective interest rate over three years, you might pay around S$1,400 in total interest—a fraction of the credit card cost.
Why This Matters
For Singaporeans, where big expenses like weddings, overseas education, or renovations can easily exceed S$10,000, these savings are substantial. Lower interest rates not only reduce the financial burden but also help you pay off debt faster.
Tip: Always compare the effective interest rate (EIR) rather than the advertised nominal rate when shopping for a personal loan. The EIR includes processing fees and gives you a more accurate view of the true borrowing cost.
2. Fixed Repayment Schedules – Better Budget Control
A major risk with credit cards is that they encourage flexible repayments. While flexibility can be useful, it often leads to debt accumulation when you pay only the minimum amount each month.
How Personal Loans Provide Structure
Personal loans in Singapore come with fixed repayment schedules—usually between 1 and 7 years—where you pay a set monthly amount that includes both principal and interest. This structure makes it easier to budget because:
- You know exactly how much you owe each month.
- You have a clear end date for when the loan will be fully repaid.
- Debt cannot snowball due to unpaid balances rolling over, unlike with credit cards.
Example Scenario
If you borrow S$12,000 via a personal loan for a medical procedure and agree to a 3-year term at a fixed interest rate, your monthly repayment will be predictable—say around S$370 per month.
By contrast, putting the same expense on a credit card means your monthly payments could fluctuate based on spending habits, and paying only the minimum could stretch repayment over a decade or more.
Why This Matters in Singapore
With Singapore’s high cost of living, having predictable monthly obligations can be a lifesaver for financial planning. It ensures you don’t overcommit your salary to variable debt repayments and lets you plan for other expenses such as CPF contributions, insurance, and savings.
Tip: If you have irregular income—such as being self-employed—choose a personal loan with a repayment term and amount that allows you to comfortably meet your obligations even in slower months.
3. Higher Borrowing Limits – Ideal for Big-Ticket Expenses
While credit cards typically offer limits based on four to six times your monthly income, they are still often capped at lower amounts compared to personal loans.
Why This Matters
If you need to finance large, one-off expenses—such as:
- Overseas university tuition fees
- A major home renovation project
- Wedding and honeymoon packages
- Emergency medical treatment
—personal loans can often provide S$30,000 to S$100,000 (or more for high-income earners), compared to a credit card’s lower cap.
Example Scenario
Suppose you earn S$5,000 a month:
- Credit card limit: Often around S$20,000 to S$25,000 total across all cards.
- Personal loan: You may be eligible for up to S$60,000 or more, depending on your credit score and bank relationship.
This difference can be crucial if you want to fund an entire project or payment in one go rather than splitting it across multiple cards (which also means multiple high-interest balances).
Benefit Beyond the Amount
Larger lump-sum borrowing through personal loans also means you can:
- Negotiate better rates with vendors by paying upfront in cash.
- Avoid juggling multiple credit card due dates and statements.
- Keep your credit utilisation ratio lower, which benefits your credit score.
Tip: Even if you qualify for a high personal loan amount, borrow only what you need. Higher loan amounts mean higher total interest costs, even at a lower rate than credit cards.
4. Debt Consolidation Benefits – Streamlining High-Interest Debt
For Singaporeans struggling with multiple credit card balances, a personal loan can be a powerful tool for debt consolidation.
How It Works
Debt consolidation means taking out a single personal loan to pay off multiple existing debts—particularly high-interest ones like credit cards, personal lines of credit, or store financing. You then make one monthly repayment to the personal loan provider at a much lower interest rate.
Example Scenario
Let’s say you have:
- Credit Card A: S$8,000 balance at 26% p.a.
- Credit Card B: S$5,000 balance at 25% p.a.
- Store Financing: S$3,000 balance at 24% p.a.
Instead of managing three different payments with high rates, you take a S$16,000 personal loan at 7% p.a. over 4 years. Your total interest over the loan term could be less than half of what you would have paid if you continued with the original debts.
Why It Works Well in Singapore
Debt consolidation is particularly effective here because many local banks and financial institutions offer Debt Consolidation Plans (DCPs) specifically for Singapore Citizens and Permanent Residents who owe more than 12 times their monthly income.
These DCPs can:
- Lower your interest rate dramatically.
- Give you a clear repayment plan.
- Stop further interest from accruing on your credit cards, giving you breathing room to regain financial stability.
Tip: Before taking a personal loan for consolidation, check whether you qualify for a DCP. These plans often come with even better terms for eligible borrowers.
Potential Downsides to Consider
While personal loans can be better than credit cards in many scenarios, they are not always the best choice for everyone. Some considerations include:
- Early repayment penalties: Some lenders charge a fee if you settle the loan early.
- Upfront processing fees: Often 1% to 3% of the loan amount, which should be factored into your cost comparison.
- Less flexibility: Once you take the loan, you cannot redraw funds without applying for a new one.
However, when the goal is structured, affordable, and purposeful borrowing, personal loans often come out ahead.
Conclusion
In Singapore’s fast-paced financial environment, choosing the right borrowing method can make a significant difference to your long-term financial health. While credit cards remain useful for short-term spending, rewards, and emergencies, they are not the most cost-effective option for large, planned, or long-term borrowing.
Personal loans offer lower interest rates, predictable repayments, higher borrowing limits, and the ability to consolidate high-interest debt—all of which can help you save money, reduce stress, and achieve your financial goals more efficiently.
By understanding when a personal loan is the better choice, Singaporeans can avoid the common trap of expensive credit card debt and take a more disciplined approach to managing their finances. Whether you are planning a major life event, funding an investment in your home, or tackling existing debt, a well-structured personal loan can be a powerful ally in your financial toolkit.
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