Taking Out Personal Loans Amid Inflation: Is It A Good Idea?

Taking Out Personal Loans Amid Inflation: Is It A Good Idea?

Numerous economies around the world are now in a period of high inflation, and Singapore is no exception. This essentially means currencies are dropping in value while costs are higher than usual and climbing. On June 16, 2022, The Straits Times reported that interest rates rose by 75 basis points (the highest since 1994) due to the inflation surge stemming from current world events. Even without understanding what basis points are and what they entail, the key takeaway is that this rise has led to the biggest increase in interest rates in Singapore ever since.

For many, this sudden interest rate hike and rising inflation may spell disastrous economic consequences, but it is not as bad as initially thought. In fact, it may not even affect your decision-making when it comes to taking out personal loans despite these supposedly bad times.

Understanding inflation and its effects

Investopedia defines inflation as a phenomenon wherein the value of money undergoes a state of decline, especially when it is weighed against a surge in the average price of commodities in an economy over a certain time period. It is measured through the inflation rate, which calculates the annual percentage rate of change in the general price index of goods and services within an economy. Apart from making things more costly, inflation also raises the cost of loans.

A loan’s interest rate, including any other monetary interest rate values, established by Singaporean banks and financial institutions are pegged to the United States Federal Reserve rates. As such, periods of global inflation prompt an interest rate hike in the US Federal Reserve, causing interest rates on loans in Singapore to rise in tandem. For individual borrowers, this ultimately means a higher cost of borrowing when taking out a loan.

However, inflation is generally only a hassle for those that took out a floating variable rate loan. This is because repayment becomes more expensive as the current interest rate for loans rises in conjunction with inflation. The fact that these loans are becoming more expensive during inflation is also bad news for new borrowers considering applying for them.

Why getting personal loans now is a good idea

Contrary to popular belief, the best times to take out personal and easy loans in Singapore and use them as leverage are during times of high inflation. The reason for this lies in the nature of personal loans in the country. Unlike floating variable rate loans, whose interest rates fluctuate depending on economic conditions, fixed-rate loans make up most personal loans in Singapore, and their interest rates remain static for the loan term. Therefore, borrowers usually gain money, not lose it, when taking out personal loans during high inflation. With money now having less value than when you initially took out a loan, personal loans end up being cheaper as you repay with money that has less worth than it had when you borrowed it.


Given the current world events and how things may not normalise just yet, getting a personal loan right now could work in your favour as you gain money from borrowing and improve your creditworthiness simultaneously. Despite that, doing due research before borrowing and evaluating which loan offers are right for you is still recommended.

If you’re unsure where to get started with personal loans, consider reaching out to us here at Orange Credit, where we’re always ready to lend a helping hand! We are a highly trusted and legal Geylang money lender with a wide range of loans for every need, from personal to business loans. For fast loan approval in Singapore, you can count on us to assist you at any time.