True annual cost of a loan including compounding and most fees. Always higher than the advertised flat rate. Singapore lenders are required to display EIR.
Effective Interest Rate is the true annual cost of borrowing, including compounding effects and most loan fees, expressed as a single percentage. EIR is always higher than the advertised 'flat rate' on most loans.
Singapore lenders are required to display EIR alongside flat rates on consumer loan promotions, helping borrowers compare like-for-like across products.
Flat rate: calculated on the original principal for the entire term. Looks low but doesn't reflect that you're repaying principal over time (so the average balance you're 'borrowing' is far less than the original principal).
EIR: calculated on the declining balance, the way mortgages work. Reflects what you actually pay relative to the money you're holding.
Rule of thumb: EIR is roughly 1.8× – 2× the flat rate on a 1-year personal loan. A '5% flat' personal loan typically has an EIR around 9% – 10%.
Interest charges at the flat rate.
Processing fees that are mandatory or near-mandatory (often capitalised into the loan).
Compounding effects from monthly payments.
Does not include: optional insurance, late payment fees, early redemption penalties.
EIR is the single best apples-to-apples comparison number. A 'low flat' loan with high processing fees can easily have a higher EIR than a 'higher flat' loan with no fees.
Mortgages already quote effective rates as standard — EIR is most useful for personal loans, credit-card installment plans, and balance transfer offers where teaser rates obscure true cost.
Always ask: 'What is the EIR including all fees?' before signing a loan. Reputable lenders disclose it; predatory lenders bury it.
The true annual cost of borrowing, including compounding effects and most fees, expressed as a single percentage. Singapore lenders are required to display EIR alongside flat rates on consumer loans. EIR is always higher than the advertised flat rate — sometimes nearly double.
Flat rate is calculated on the original principal for the whole tenure (misleading for installment loans). EIR is calculated on the declining balance — what you actually pay relative to outstanding debt. A '5% flat' 1-year personal loan has an EIR of ~9% – 10%.
Always EIR. A 'cheap-flat' loan with high processing fees can easily have a higher EIR than a 'higher-flat' loan with no fees. EIR is the only apples-to-apples comparison. Reputable lenders disclose it prominently; predatory lenders bury it.
Mortgage rates in Singapore are already quoted as effective rates on the declining balance (the way EIR is calculated). EIR disclosure is most relevant for personal loans, credit card installment plans, and balance-transfer offers where teaser rates can obscure true cost.