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6 Things to consider when choosing your loan tenure

Young asian woman calculating monthly personal loan instalment amount to decide on best loan tenure
Young asian woman calculating monthly personal loan instalment amount to decide on best loan tenure

Table of Contents

#1 Know your existing liabilities

It is important you take your liabilities into consideration when choosing your loan tenure to ensure your loan repayment amount and schedule are something you can deal with. 

Home loan repayments, credit card payments, car loan repayments, medical costs, insurance premium payments, your children’s tuition fees, and an array of bills are some of the most common financial liabilities people have. 

While everyone’s situation is unique and different, be truthful with yourself: what are all your monetary obligations and liabilities?  

#2 Understand your monthly budget

Make an effort to know what your monthly budget is. To do that, list down all your monthly commitments and fixed costs including bills, groceries, insurance premiums, utilities, mortgage, petrol, kids’ allowances and school fees, parents’ allowances, family meal allowances, etc. 

Total up the sum and compare it against your monthly salary. How much disposable do you have after minusing these fixed costs and mandatory CPF contributions? What’s the monthly loan repayment amount you can truly afford? 

When choosing your loan tenure for personal loans, it is crucial that you work with what you can feasibly manage without being overstretched financially. It is not a good idea to shoot for a short loan tenure just because you want to minimize the interest charges accrued. 

Man with calculator at office and hand writing in notebook about loan tenure

#3 Consider the loan amount you need

This point is often overlooked as people seeking personal loans to tide over urgent financial woes typically pay more attention to things like interest rates, fast loan approval, and fast cash disbursement.  

Before you even think about your loan tenure and monthly loan repayment amount, spend some time to figure out exactly how much you need to borrow. As always, do not borrow more than necessary — only borrow what you need to tide over your emergency cash needs. Never borrow to fund your wants!

Find out more about personal loans here.

#4 Know how much interest charges there are

Licensed money lenders in Singapore are allowed to charge interest rates of up to 4% per month. Before you settle on a personal loan that best suits your needs, definitely do your homework: 

(1) Get loan quotes from several licensed money lenders

(2) Compare the interest charges that each loan quote entail 

In general, the longer your loan tenure is, the more interest charges you will have to fork out ultimately. 

You absolutely do not want to be stuck with a loan that will take many years to complete. This is why it’s crucial that you know exactly what you are in for when it comes to picking a personal loan with the right loan tenure for yourself.

The words 'equated monthly installment' written on keyboard to represent things related to loan tenure

#5 Use an Equated Monthly Instalment (EMI) calculator

You can also use an Equated Monthly Instalment (EMI) calculator to help you compare loan offers from different licensed money lenders and banks in Singapore. 

This is one handy tool you can tap on to help you choose the best personal loans and loan tenure for your needs. 

While you’re at it, do play around with the loan tenure. Thereafter, decide if you’re better off with a lower interest rate loan with longer loan tenure or a higher interest rate loan with shorter loan tenure to see which option results in the least interest charges overall.

#6 Assess your future financial prospects

Do you foresee getting any salary increment in the near future? Are you due for a big fat bonus soon? Are you job hopping to get a big salary raise in the foreseeable future?

If your answer is ‘yes’ to any of the above questions, it could translate to more disposable income for you. You might be able to get away with a shorter loan tenure with higher monthly repayment amounts instead of erring on the side of caution and opting for a longer loan tenure with lower monthly repayment amounts! 

If you are confident of paying off your loan quicker, why not consider 12 month loans too? This gives you one full year to pay down your debt while limiting your interest charges. Interest savings is akin to free cash, agree?


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