Borrow S$20,000 over 3 years at an advertised flat rate of 4.0 percent a year. A flat rate charges interest on the full original principal for the whole tenure, so the interest is 4.0 percent of S$20,000 for 3 years, which is S$2,400. Adding that to the principal gives S$22,400, spread over 36 months, so the monthly repayment is about S$622.
Here is the catch the flat rate hides. You are repaying principal every month, so by the end you owe far less than S$20,000, yet you keep paying interest as if the full amount were still outstanding. The effective interest rate, the EIR, is therefore close to 7.2 percent, roughly 1.8 times the 4.0 percent flat rate. Always compare personal loans on EIR, not the headline flat rate, because two loans with the same flat rate can carry very different true costs once fees are added.
How it is calculated
Banks usually advertise personal loans at a flat rate. Total interest is the loan amount times the flat rate times the number of years, charged on the original principal regardless of how much you have repaid. The monthly repayment is the principal plus that total interest divided by the number of months. Because you actually owe less and less each month, the effective interest rate is much higher than the flat rate, and a common rule of thumb puts the EIR at roughly 1.8 times the flat rate for a typical tenure. This tool uses that approximation, so treat the EIR figure as indicative. The Monetary Authority of Singapore requires lenders to disclose the EIR, which is the number to compare across offers.
Frequently asked questions
Why is the EIR higher than the advertised rate?
Personal loans are usually advertised at a flat rate applied to the original principal for the whole tenure. Because you repay the principal gradually, the effective interest rate (EIR) you actually pay is almost double the flat rate. Always compare loans on EIR.
What is the maximum personal loan a bank can offer in Singapore?
Under MAS Notice 171, banks and licensed moneylenders cannot extend unsecured credit that causes a borrower total unsecured debt to exceed six times their monthly income. For borrowers earning below S$20,000 a year, different caps apply. The MAS aggregate limit means your personal loan, credit cards, and other unsecured facilities combined cannot exceed that threshold.
Is personal loan interest tax-deductible in Singapore?
No. IRAS does not allow a deduction for personal loan interest under the Income Tax Act 1947. Interest is only deductible when a loan is taken for an income-producing purpose, such as to purchase shares that generate dividend income or property that generates rental income. Consumer personal loans do not qualify.
How does early repayment affect the total interest paid?
Because Singapore personal loans are priced on a flat rate, the total interest is calculated upfront on the original principal and baked into the repayment schedule. Paying off the loan early does reduce the remaining instalments, but most banks charge an early-redemption fee of one to two percent of the outstanding balance. Check the loan agreement before prepaying to confirm whether the fee savings offset the interest saved.