Business & Economy Personal Finance Personal Loan & Interest Rate War? What it Means for Consumers

Personal Loan & Interest Rate War? What it Means for Consumers




- Advertisement -

Personal Loan "Interest Rate War"? What it Means for Consumers

Since March 2017, 3-month SIBOR rates increased from 0.94% to 1.45%. SIBOR (Singapore Interbank Offered Rate) measures the cost of borrowing for banks, businesses and individuals. Typically, when market interest rates rise, we would expect the interest rates of financial products to follow a similar pattern. However, we noticed a curious pattern recently: interest rates for personal loans have actually started to decrease.

SIBOR interest rates January 2014 through March 2018

Chart updated as of 11 April 2017

Personal Lenders Have Decreased Interest Rates

Over the past year, many major banks in Singapore have lowered their interest rates for personal loans in an apparent competition fueled “interest rate war”. Let’s examine some of the leading personal loan offers in the market. For example, DBS and POSB decreased their lowest interest rates available to borrowers from 5.88% to 3.88% in early 2018.

DBS & POSB Lowest Personal Loan Interest Rates, 2018 vs 2017

In response, other banks have been following suit by lowering their rates. In April, behemoth HSBC lowered its rates slightly for 4 to 7 year personal loans and introduced a new, low rate for large personal loans to high-income borrowers. Finally, CitiBank lowered its rates for new customers, while Maybank lowered their rates for personal loans of all tenures.

CitiBank Ready Credit Paylite Interest Rates (New Customers) 2017 vs 2018

What Could Be Causing This?

- Advertisement -

Coincidentally, unsecured personal loans, including personal loans, education loans and renovations loans, experienced significant growth as a category for the first time in 2017 since 2014. This may indicate an increase in general consumer demand for credit and debt products. While this is a speculation, it could be that banks are jumping on this opportunity to grow their business and market share while the demand is still high by lowering their prices (i.e. interest rates) in order to attract more borrowers.

Total Outstanding Personal Loan in Singapore

What Does it Mean for Consumers?

The decrease in personal loan interest rates makes the total cost of borrowing less expensive for individuals. For example, given rates from 2016, a three-year loan of S$10,000 from DBS would have cost S$1,864 in total. With DBS’s best current rates, the loan would cost only S$1,264 in total. This indicates that it is now a better time to apply for a loan compared to a year ago.

While personal loans can be useful and are often essential for individuals, we recommend that borrowers consider all financing options available before applying for a loan. For instance, specific-use loans such as car loans, mortgages or renovation loans tend to offer lower interest rates. This is because banks are generally less wary of lending to borrowers when they understand the purpose of the financing. Additionally, if you are seeking a loan to pay off other debt, you might be better off with a debt consolidation loan.

However, if you need funds for a large one-time expense, such as a medical procedure, wedding or relocation, now could be a great opportunity to take advantage of personal loans while banks are waging a rate war against one another. SIBOR may continue to rise along with US rates for the next few years, eventually driving personal loan rates back up.

The article Personal Loan “Interest Rate War”? What it Means for Consumers originally appeared on ValuePenguin.

ValuePenguin helps you find the most relevant information to optimise your personal finances. Like us on our Facebook page to keep up to date with our latest news and articles.

More From ValuePenguin:

Source: VP

Send in your scoop to 

- Advertisement -

JTC issues stop-work order on contractor that ‘erroneously’ cleared Kranji woodlands

Singapore – The contractor that “erroneously” cleared a forested area at Kranji has announced it has been issued a stop-work order by JTC and is assisting the developer with investigations on the issue. On Feb 16, state-owned industrial property developer JTC responded...

Clementi, Dover, Kranji: Singapore’s grand conservation plan is to plant trees and destroy forests

Yes, we love to plant trees. Since Lee Kuan Yew started the whole ritual, at least 10,000 saplings are planted every year since 1963 as part of the Tree Planting campaign. Impressive indeed. Singapore Clean and Green. At the same time,...

Ex-UOB vice-president charged with mishandling over S$5.4 million

Singapore—Sixty-five-year-old Ling Shek Lun, who used to be a  vice-president at UOB, has been charged with mishandling millions of dollars, reported (ST) on Friday (Feb 19). Ling, a Singaporean who was charged in district court on Feb 10, faces two charges...

Send in your scoop to