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?

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Personal Loan VS Line of Credit: What's the Difference?

Personal loans and lines of credit are both advertised to give you quick cash. How do you differentiate between the two, and which one should you get for your situation?

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 (2023)

MoneySmart Exclusive
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Standard Chartered CashOne

Interest Rate*
3.48%
Total Amount Payable
S$11,044
Processing Fee
S$0
Per Month
S$307

Get up to S$4,915.80 worth of free gifts [up to an Apple iPhone 14 Pro Max (worth S$1,815.80) AND up to S$3,100 Cashback from Standard Chartered] when your loan is approved this February! T&Cs apply.

Valid until 07 Feb 2023

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
MoneySmart Exclusive

UOB Personal Loan

Interest Rate*
3.4%
Total Amount Payable
S$11,020
Processing Fee
0%
Per Month
S$306

Get up to S$3695 worth of free gifts [up to an Apple AirPods Pro 2nd Gen + Apple AirTag bundle AND up to S$3,288 Cashback from UOB] when your loan is approved this February! T&Cs apply.

Valid until 28 Feb 2023

Best Line of Credit in Singapore (2023)

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
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

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.