Understanding the Effective Interest Rate (EIR) in Personal Loans and How to Calculate It.

By Wally Wong Understanding the Effective Interest Rate (EIR) in Personal Loans and How to Calculate It. | Updated 22 May 2024 4 minutes


At a glance...

Ever wondered what the Effective Interest Rate (EIR) means for personal loans? It’s a handy rate you can use to compare various loan options to make the best choice. Find out what you need to know about EIR and other factors to consider when choosing a personal loan for your financial needs.

What is an Effective Interest Rate (EIR)?

When learning more about personal loan options, the term “effective interest rate”, or EIR for short, often pops up. Knowing what it means can offer borrowers a clear lens to assess and compare different loan options. Think of it as the “real” cost of the loan, as it considers factors such as how often you pay and the impact of compounding. 

In simple terms, EIR shows the total cost of borrowing a loan. Unlike the annual interest rate, which just tells you the basic interest, EIR gives you a bigger picture. EIR is stated in your loan terms as a loan amount percentage and considers instalment counts, frequencies and amounts to offer you a better borrowing cost.

Why not just look at regular interest rates?

Lenders often advertise their enticing annual interest rates to attract borrowers. However, EIR remains superior if you want a clear idea of interest accumulation. It is the best way of comparing loans.

For example, two banks offer a 5% annual loan interest rate. But their payment structures might be different. One might let you pay back in smaller amounts over a more extended period. But the other might opt for an additional setup. Using EIR gives you an apple-to-apple comparison. Moreover, since 2023, Singapore’s financial institutions must disclose EIRs of loan products to consumers. This provides transparency and helps with informed decision-making.

To calculate the EIR, look at the scenario below or use an online EIR calculator. Another time-saving way is to use our loan comparison platform. It lets you quickly research and find the lowest interest rate for personal loans in Singapore so you can make the best decision for your needs.



How do you calculate EIR? Although banks must account for overheads such as administrative fees when determining EIR, let’s look at how it is calculated in a basic computation without additional costs.

EIR = (1+r/n^-1),


r is the annual interest rate,

n is compounding instances, or how often interest is added.  

Imagine borrowing $10,000 over 12 months with monthly repayments of $875 at 5% annually. Here’s what your EIR calculation would be:

EIR = (1 + 0.04167% / 12) ^ 12 – 1 = 5.2%.

Therefore, the total cost of the loan is $10,520.00. You will pay back this amount with an EIR of 5.2%.

Should I always pick the lowest EIR?

Usually, a low EIR is favorable for a personal loan. However, you should consider factors such as the flexibility of the payment terms. Sometimes, a slightly higher EIR is better if it gives you more leeway in how you repay the loan. This depends on individual needs.

One key factor is to think about your monthly repayment capacity. Certain financial institutions might offer a lower EIR for shorter loan periods. But this comes with a higher monthly repayment amount. It’s crucial to consider whether you can keep up with the monthly repayment as there are other risk factors, such as penalties for overdue payments, which can increase your financial strain.



Loan duration and EIR: Often, longer loan terms mean a reduced EIR. However, they also come with a higher total interest overall. For instance, increasing repayment terms from 12 to 24 months with the same rate and amount might decrease EIR from 5.2% to 4.7%. But the caveat is that while you pay less monthly over an extended period,  you pay more over the 24 months. This is due to the additional compounding interest added to the loan.

Current Effective Interest Rates

The table below provides the current effective interest rates for personal loans in Singapore as of Sunday, October 15, 2023. The rates listed below are subject to change

LenderEffective Interest Rate Annual Interest RateProcessing Fee
CIMB Bank 6.32% 3.38%$0
Citibank 6.50% 3.45%$0
Standard Chartered 6.95% 3.48%$0
OCBC Bank 7.49% 3.80%1.0% of approved loan
DBS 7.56% 3.88%$100
POSB 7.56% 3.88%$100
Maybank 7.29% 3.88%$200
HSBC 7.50% 4.00%$0
OCBC Bank 12.11% 5.42%$200
*Today's Personal Loans Rates - 22 May 2024


EIR offers a comprehensive view of borrowing costs, incorporating multiple factors. While it’s crucial to help you compare personal loan options, you should still look at factors like total interest and installment amounts. Try ROSHI’s loan marketplace. It streamlines the search, offering choices from various lenders in one platform.

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