How To Apply For A Personal Loan With Bad Credit in Singapore

In uncertain and challenging times, getting a loan may sometimes be our last resort especially if we have to pay off emergency bills, such as hefty hospitalisation bills or sizeable vehicle repair costs. Unfortunately, if you have ever failed to repay your loan on time, traditional banks may not approve any future loans because of your marred credit history.

While it is challenging to find money lenders for bad credit, it is still possible to do so with the right online money lenders in Singapore.

In this article, we share some tips on how you can acquire a loan with bad credit. But before that, it is always good to be aware of the factors affecting personal loan approvals —such as credit history and credit score— at various financial institutions.

What are credit history and credit score?

Your credit history includes your past transactions and loans with banks. Based on these records, a credit score will be issued to each individual, which is an indicator of how likely this person would repay their loans on time.

Credit scores are evaluated by Credit Bureau Singapore (CBS) and are calculated based on several factors, including the amount of credit owed, the number of ongoing loans, and late repayment history. A credit score ranges from 1000 to 2000 where the lower the score, the riskier the borrower is deemed to be and the higher the possibility of them defaulting on the payment.

Banks usually do not provide personal loans for poor credit history, but licensed lenders do. Typically, money lenders do not check their borrower’s credit scores. Instead, they would check your borrowing limit and history with other money lenders on the Moneylenders Credit Bureau platform via the Loan Information Report.

What is considered a bad credit score?

Based on the scale of 1,000 to 2,000, a score of 1,000 to 1,723 is seen as a bad credit score, and would put you in the ‘HH’ category, meaning that defaulting on loan repayment is highly likely.

To check if you have a poor credit rating before attempting to apply for a loan, simply get your credit report from CBS. Do note that the report will cost you $8.00 (inclusive of GST).

There are various factors that will affect your credit rating; the number of credit facilities (including credit cards) you have recently applied for, amount of credit used, frequency of delayed payments and number of enquiries about your credit rating.

But remember, your credit score isn’t just the sole requirement; other key factors include your income and duration of employment or unemployment.

What is a bad credit loan in Singapore?

A bad credit loan is a type of unsecured loan catered to borrowers with less than ideal credit ratings who happen to require urgent finances. Individuals with their fair share of experience in repeated loan rejection due to poor credit score may also get a bad credit loan in Singapore.

In fact, there are many financial institutions out there, such as banks and non-bank financial institutions (e.g. Hong Leong Finance), who offer personal loans for bad credit. However, they may have strict eligibility requirements when it comes to the application for loans with bad credit.

But unlike these financial institutions, money lenders may be the better option due to their quicker bad credit loan approval process and higher approval rate. If you don’t already know, licensed lenders are very inclusive in this regard.

What affects your bad credit loan approval with money lenders?

1.  Borrowing limit

Whether you’re applying for a bad credit loan or regular unsecured personal loan, borrowers have a maximum borrowing limit across all lenders in Singapore at any given time. The ceiling will depend on your annual income and residency status in Singapore, up to six times your monthly income.

2. Borrowing history

Licensed lenders will also assess if you have a favourable borrowing history before granting a bad credit personal loan. This will include any default on previous loans, late repayment, and previous involvement with social service agencies due to personal loan debt and issues.

3. Taking multiple loans in a short period

Money lenders usually view borrowers who have approached several lenders for different loans within a month or two as red flags. This behaviour suggests that the borrower could have serious financial problems and may not be able to pay off all their loans, making them a risky candidate.

4. Banned or self-excluded by your family or yourself

Money lenders will not authorise bad credit personal loans to those on the MLCB self-exclusion listing, which prohibits individuals from applying for any unsecured loans.

How can bad credit affect your personal loan?

1.  Loan approval

A bad credit score will prevent you from getting any bank loans approved. However, licensed lenders could still approve a personal loan for bad credit.

2. Interest rates

While licensed lenders may offer you a loan for poor credit history, they may also increase their interest rates as a justification. By law, licensed money lenders’ interest rates are capped at 4% per month.

3. Loan amount

While money lenders could offer you loans for bad credit in Singapore, you may only be eligible to get a smaller loan amount. Instead of obtaining the full amount you require, you’ll have to settle for less.

4. Loan term

Unfavourable credit history may shorten the loan repayment period offered to you. This is done to reduce your probability of defaulting.

5. Late interest and fees

It’s good news if you can get a loan with bad credit ratings. But by having a bad credit history, the late interest and late fees charged to you might be higher than what would have been charged to a borrower with better credit history. This could increase your cost of borrowing even more in the event that you make late repayments.

However, licensed lenders are required by law not to charge late fees exceeding a total of $60 for each month of late repayment nor late interest of more than 4% a month on the overdue amount owed.

6. Bankruptcy or Debt Repayment Scheme

Money lenders may reduce your loan amount and increase interest rates if you have a history of bankruptcy or are in an ongoing debt repayment scheme (DRS). DRS is a pre-bankruptcy arrangement between the debt collector and the creditor to help pay off all loans within five years.

7. Ongoing or past litigations with banks

Any legal proceeding due to loan defaults with a bank or money lender may affect your loan amount and interest rates.

How can you get a guaranteed personal loan with bad credit?

1. Get a secured loan

Unlike unsecured loans, secured loans require collateral but are more likely to be approved despite a bad credit score. Some examples of collateral are your property or car. If you default on your loan payment, the lender will have the right to seize and liquidate the collateral to recoup their losses.

2. Prove that you have a stable source of income

One way to show your financial ability to repay your debt is through a monthly payslip. If you have a stable income, money lenders are more likely to trust you and offer you a bad credit personal loan in Singapore.

3. Demonstrate that you have a low debt-to-income ratio

A debt-to-income ratio is calculated based on the amount of income you use to pay off your debts. A lower ratio means you are using a smaller percentage of your income to repay your existing debt, which means there is a higher probability of you repaying future loans on time. This increases your chances of getting your bad credit loan approved.

4. Opt for a smaller loan amount

Smaller loans equal a higher probability of on-time repayment. Therefore, your chances of getting a bad credit loan approval would increase.

How to raise your chances of getting your future loans approved?

At the end of the day, it’s easier to get a loan approved when you have a good credit score. This means ensuring that you repay your loan instalments on time to avoid getting penalised. You can also work on getting additional sources of income to increase your monthly earnings so your lender has more confidence that you will be able to repay your loans.

Looking for a guaranteed bad credit personal loan in Singapore? We understand your frustrations at not being able to get a loan elsewhere. Prosper Credit is a licensed loan company in Singapore that seeks to cater to the needs of all borrowers as much as possible, including folks with bad credit history. Apply for a loan with us today or speak to us to learn how we can help you.