Personal Loan vs Line of Credit: Interest Rates & Requirements

Personal loans are short-term loans that you can take when you are facing cash flow issues. But you can also withdraw quick cash from a line of credit. So, what exactly is the difference between these two banking products?

Masthead Image

Difference between personal loans and lines of credit

A personal loan has fixed interest rate and loan tenure. A line of credit has an open-ended loan tenure with higher and variable interest rates.

  • Definition of personal loan

    A personal loan is a flexible type of loan that you can take out when you are facing a situational cashflow issue with a fixed interest rate and a fixed loan term of up to 5 years. Personal loans are "term loans" that are amortised, meaning that during the repayment period, the ratio of principal to interest adjusts such that you pay the same amount over a fixed number of months. For instance, if you borrow $10,000 via a personal loan with a 3.88% interest rate (7.56% effective interest rate) over 5 years, you will repay $199 every month.

  • Line of credit meaning

    As for line of credit, the amount that you can withdraw is dynamic, as long as it is under the credit limit. It is a "revolving loan", where interest charges accumulate daily. A credit card is a unique example of a line of credit, because as long as you pay your balance in full every month, you need not pay credit interest. Unlike a personal loan, the loan term is open-ended and not fixed, and the interest rate can also vary. For personal loans, you pay a one-time processing fee while for a line of credit, there is an ongoing annual fee that renews yearly.

Personal Loans vs Lines of Credit Comparison (Singapore)

Personal loan Personal line of credit
Interest rates Fixed, between 3.7% to 4.5% Variable, averaging between 18.6% p.a. and 20.9% p.a.
Loan terms Up to 7 years Open-ended
Repayment Fixed monthly paymentRanges from daily to monthly or yearly payments
Processing fees One-time origination fee: 1% to 6% Ongoing annual fee: $25 to $60
Early repayment penaltyYesNone

Best Personal Loans in Singapore (2020)

Lowest EIR of 7%! Plus up to $300 Cashback!

HSBC Personal Loan

  • Interest Rate*

  • Total Amount Payable

  • Processing Fee

MoneySmart Exclusive: 3.7% p.a. Interest rate + 0% Processing fee + Up to $300 Cashback

Online Promo: Min. loan repayment of 1 year to Max. of 7 years

Online Promo: *E.I.R: Effective Interest Rate of 7.00% p.a. is applicable for all loan tenors

HSBC Personal Loan offers the lowest interest rate at the moment at 3.7%, with $0 processing fee. You also get a cashback of $108 (limited-time promotion). You are allowed to borrow up to 8 times of your monthly income and they also offer the longest loan tenure of 7 years.

For foreigners, you need an annual income of at least $40,000 and employment pass with validity of at least 1 year to be eligible for application.

Online Promotion: As low as 3.7% p.a. interest rate + S$0 processing fee + $108 Cashback. Valid till 29 Feb 2020.

  • Interest Rate*

  • Total Amount Payable

  • Processing Fee

MoneySmart Exclusive: Get additional S$100 Cash Next day via PayNow! Applies for min. approved loan amount of S$20,000.

Online Promo: Get 50% cashback on your 1st month's instalment + $199 Cashback!

Online Promo: Instant cash disbursement + $20 cashback!

Online Promo: *E.I.R: Effective Interest Rate of 8.04% p.a. based on 3 Year loan tenure

Online Promo: Min. loan repayment of 1 year to Max. 5 years

The interest rate for Standard Chartered CashOne Personal Loan is 3.88% (7.63% p.a.). There is also a cashback promotion of 50% off your first month’s instalment.

The minimum annual income for Singaporeans is lower at $20,000. But for non-Singaporean/PR, you need an annual income of at least $60,000 in order to be eligible.

MoneySmart Exclusive: 3.88% p.a. guaranteed + $100 Instant Cash via PayNow + $199 Cashback! Fill up claim form to be eligible. Valid till 31 Jan 2020.

  • Interest Rate*

  • Total Amount Payable

  • Processing Fee

MoneySmart Exclusive: Secured application via DBS ibanking account on MoneySmart and get your instant approval!

Online Promo: Min. loan repayment of 1 year to Max. 5 years

Online Promo: *E.I.R: Effective Interest Rate of 7.90% p.a. based on 3 Year loan tenure

POSB Personal Loan has some of the lowest interest rates at 3.88% p.a. (EIR 7.56%). You can get up to 10x your monthly salary, if your annual income is $120,000 and above. There is a one-time processing fee of $100.

Only Singaporeans or PR with an annual income of at least $20,000 can apply.

MoneySmart Exclusive: Enjoy S$1,088 Cashback + 3.88% interest rates. Valid till 29 Feb 2020.

Best Line of Credit in Singapore (2020)

Interest Rate Annual FeeMinium Annual Income RequirementMaximum Credit Limit
HSBC Personal Line of Credit 18.5% p.a.$60 (waived for the first year)$30,000 for Singaporeans/PR4-8x monthly salary
$40,000 for foreigners1x monthly salary
Maybank CreditAble9% for the first year, and 19.8% p.a. thereafter$80 (waived for 2 years)$30,000up to 4x of monthly salary
DBS Cashline20.5% p.a.$120$30,0004x monthly salary
UOB CashPlus0% p.a. for 3 months; 4% p.a. for 6 months; 6% p.a. for 12 months; otherwise, 20.5% p.a$120$30,000up to 4x monthly salary
$120,0006x monthly salary, capped at $200,000

How do I choose a personal line of credit?

If you're looking to get a line of credit but is unsure of how to proceed, you'd need to first understand your financial needs. By that, I mean how long you need your loan for. You need to be confident about how long you'd need to repay your loans because any late payment would incur additional fees! Before you decide on a suitable line of credit, refer to the table above to get a good comparison about the various lines of credit offered by the 4 different banks.

So, should I get a personal loan or a line of credit?

Still confused? Well, a personal loan is for a fixed amount over a fixed number of months. If you have credit card debts, you can get a personal loan to consolidate debts and repay at a much lower interest rate. There is an early repayment penalty, so it's something you'd get if you think that your cash flow won't drastically improve in the near future.

A line of credit is "standby cash". The interest is charged when you draw money from it. The interest rates are much higher than personal loans (but lower than credit cards) at averagely 0.06% per day, 18.6% p.a. to 20.5% p.a. There is no repayment penalty and approval is fast. So, it's really only for you to tide things over within a few months. You are certain that your cash flow will improve and you can repay as soon as possible.

Frequently Asked Questions

Is it hard to get a line of credit?

As long as you meet the eligibility conditions of the bank, it isn’t hard to get a line of credit. If you are a cardholder, you'd even get calls from the bank encouraging you to do so. But, don't do it unless absolutely necessary.

Is it a good idea to get a personal loan?

The question doesn't have a black-and-white answer. The best recommendation we can give is that it is okay to get a personal loan as a last resort. Of course, it is better to exercise prudence on your day-to-day expenditure such that you have reserve funds and don't ever need a personal loan. However, there may be situations where you suddenly require a large amount of cash and a personal loan can tide you over. If you have chalked up credit card debt, a personal loan is definitely a good idea as it has lower interest rates than credit cards. Take note that taking on many personal loans with no clear plan of repayment can hurt your credit rating in the long run.

Which bank offers the best personal loan in Singapore?

For now, it seems like HSBC, OCBC, POSB, DBS and Citibank are providing the best interest rates and personal loan promotions in Singapore. You can compare them based on effective interest rates, loan repayment tenures and minimum annual income requirement with MoneySmart's comparison tool.

What does the effective interest rate mean?

The effective interest rate takes into account the nominal interest rates and the compounding frequency of the loan. This is why two different personal loans with the same interest rate can have different effective interest rates. When comparing, use the EIR as it provides a more accurate picture of how much interest you are actually paying.

Special Financial Relief Programme

Still need help with your personal loans? Wonder what is going to happen to your debts? Under the MAS Special Financial Relief Programme, you can defer some loan payments to help ease your cashflow. Head over to check what you can or cannot defer.