Getting a good loan in Singapore may be hard to find if you have a bad or low credit score. After all, these scores are used to assess how likely you are to repay these loans. The side effect of bad credit goes a long way unless you do something about it. And while there are ways to increase a credit score, getting there can be tough.
So, what happens when you have poor bad credit and need a loan? Chances are, you may be offered a loan from a bank, but it will be at a higher interest rate and could be harder on your finances. Or, you could even end up with loan sharks or ah longs.
Having a bad credit score means missing out on mainstream opportunities and may also cause a delay in saving for your retirement funds. Luckily, licensed moneylenders in Singapore can offer you loans and help rebuild your credit score simultaneously. Find out how this is possible and how to apply for one.
What is a Credit Score?
Generally, a credit score is a four-digit number that ranges between 1000 and 2000. These aggregated scores have an equivalent risk grade that depicts the likelihood of a borrower defaulting on a loan. As shown below, the lower the score on the scale, the higher the risk or probability of default.
| Credit Score | Default Probability | ||
|---|---|---|---|
| Risk Grade | Min | Max | |
| 1911 – 2000 | AA | 0% | 0.27% |
| 1844 – 1910 | BB | 0.27% | 0.67% |
| 1825 – 1843 | CC | 0.67% | 0.88% |
| 1813 – 1824 | DD | 0.88% | 1.03% |
| 1782 – 1812 | EE | 1.03% | 1.58% |
| 1755 – 1781 | FF | 1.58% | 2.28% |
| 1724 – 1754 | GG | 2.28% | 3.48% |
| 1000 – 1723 | HH | 3.48% | 100% |
Lenders may likely deny your loan with an HH rating or impose interest rates based on these scores.
One key thing to remember is the last 12 months of debt repayment records will be tracked and used to measure the ranking (including closed and defaulted accounts). Building a strong credit management routine is key. Although credit remediation is a slow and gradual process with persistence and consistency, the score is likely to change very quickly.
How to Obtain A Credit Report From Credit Bureau Singapore
There are two ways of obtaining a credit report in Singapore. The standard way is to request a copy online from CBS at a minimal fee of S$6.42. You can also pay online using a MasterCard, Visa, or credit card.
The other way is to get the credit report for free through banks and other credit facilities. You can get a free copy of your credit report, whether your loan is approved or denied.
Here are what you’ll find in the report:
- Basic information such as name, address, and contact numbers
- A full record of credit checks about the borrower
- Credit repayments over the last 12 months
- Record of default or bankruptcy, if any
- Closed or terminated accounts
- Loan balances
- Credit limits
- Credit Score
Best Personal Loans in Singapore to Apply
Having a bad credit score does not automatically mean a denied loan application. Lenders use a variety of other measures, including your income, employment status, and capacity to pay. So, even with a bad credit score, you still have a good chance of getting a personal loan.
Here are some of the best personal loans in Singapore:
| Minimum Annual Income | Loan Tenure | Interest Rate | Processing Fee | |
|---|---|---|---|---|
| HSBC Personal Loan | S$30,000 | Up to 7 years | 3.2% | 1% |
| CitiBank Quick Cash Personal Loan | S$30,000 | Up to 5 years | 1st year: 4.94% | None |
| POSB/DBS Personal Loan | S$20,000 | Up to 5 years | 2.88% | 1% |
| Standard Chartered’s CashOne Loan | S$20,000 | Up to 5 years | 1st two years: 9.8% Next three years: 10.8% | None |
| Personal Loans from Licensed Moneylenders (Alternative Option) | S$24,000 (or S$2,000 per month) | Up to 1 year | 1.4% | None |
Truthfully, you can apply for any loan, however, banks may reject bad credit loans. Thus, the next best alternative is finding providers that don’t require a score, such as licensed moneylenders.
To avoid loan sharks that pry on lenders with bad credit scores, you can check MinLaw’s website for the complete list of licensed moneylenders. You can also check reviews on Google or request quotes from Loan Advisor to save on time and find the best offers.
How to Choose The Right Lender of Personal Loans in Singapore
There is no shortage of lenders for personal loans in Singapore. But how do you choose the best for a personal loan?
Here are some crucial questions:
- How would you pick the right personal loan out of the many options lenders will offer you?
- How do you weed out the good ones from the bad ones?
Understanding Interest Rates of Personal Loans Singapore Lenders Offer
Interest rates of personal loans in Singapore vary from lender to lender. As such, you must do your research because the interest rates of personal loans Singapore lenders offer may include other fees (e.g., processing fees).
Low-interest rates do not automatically mean being the best loan as they may include additional charges and hidden fees. Thus, a bank that offers a high-interest rate can also be a good choice, especially if there are no other charges. So, when computing the interest rate, don’t forget to add further charges to see which bank gives you the most savings.
Licensed Moneylenders As an Option
A licensed moneylender would typically not be the first option. Yet, as we always aim to educate and provide solutions, they are worth recommending and are a viable option.
Because licensed money lending is a high-risk, high-reward business, these businesses can only be willing to provide small sums of loans. Lending a small sum makes collecting the principal amount cheaper for them – they will only need to receive a handful of high-interest payments. This option reduces their chance of failing.
If you need to turn to a licensed moneylender, understand the interest plan and the terms and conditions of the loan agreement. Further, give yourself a waiting period and think about the decision thoroughly.
Tips to Manage a Bad Credit Score
If you are a person with a bad credit history, one thing that you can do is to try to fix your credit rating to a degree where you can apply for loans with better interest rates. You should always repay loans on time; it’s a rule of thumb not to default on your loans.
Another wise thing to do is to avoid applying for multiple loan inquiries in a short period. This action gives off a bad impression to the moneylender. Lastly, taking a small loan and repaying it on time can help you improve your credit score.
Remember that credit history is one of the determining factors of the bank of your choice when assessing your application. If you don’t need the loan instantly, it could be worth it to wait while paying off personal debts.
1. Applying for a Smaller Loan Amount
A bad credit score could stop you from getting a big personal loan from a bank. Your loan gets rejected because a poor score or less than a stellar credit history may indicate that you may not be able to pay for your loan (personal and any other types of loan).
Therefore, another solution is to consider applying for a small personal loan, a form of credit typically ranging from S$100 to S$2,000. A small loan differs from a regular personal loan because they usually have shorter loan terms and more flexible criteria for lending. Non-traditional borrowers sell these.
It’s important to remember that most bank loans have a total amount of collateral, usually greater than what small personal loan lenders provide.
Why does this help? If you get the loan approved, make sure that no payments are skipped. Place reminders or get a trustworthy friend to remind you of the due dates of this loan. And aim to make a full payment for each.
The goal is to prove you can adhere to a prescribed repayment schedule. It will demonstrate your willingness to repay the loan, which banks will find beneficial.
2. Paying Off Outstanding Debts
The appearance of outstanding personal debt nearly invariably suggests a poor credit score. One thing you should do to boost your odds of securing a loan is to tackle your current debts.
This method will take months, or even years, so be vigilant and remember you are one step closer to improving your credit score for each repayment you make.
3. Make a List of your Outstanding Loans
Before you can plan on the best course of action to tackle your debts, you need to know exactly how much credit you owe each creditor. For that to happen, you would need to obtain a copy of your credit report. This report would help you to understand your financial health and the amount you owe.
4. Avail of a Balance Transfer
Many banks offer this function known as a balance transfer. This financial assistance tool helps you to combine what you owe from multiple (at high interest) bank firms into one issuer or lender, at reduced or even no interest, while they charge a flat processing charge (around 2 percent).
Besides simplifying your repayments, it also prevents the existing debt from snowballing on your credit card bills. Balance transfer repayment has interest-free periods ranging from 3 to 12 months, after which hefty interest will kick in.
So, if you are confident in your ability to clear the balance transfer amount within the interest-free period, you should only take on a balance transfer.
5. Obtain Credit Counseling
When all of the debt reduction strategies listed above do not bear change, you should contact Credit Counselling Singapore to seek support and guidance to address your debt problems. They will offer guidance, support, and connect you to tools that can help you stay debt-free on your journey.
6. Consider the Debt Consolidation Plan
You can apply for a Debt Consolidation Program (DCP) if you have unsecured loans or debts (credit cards and personal loans) that reach 12 times your monthly income.
This consolidation plan is led by the Association of Banks in Singapore (ABS) and allows you to consolidate your debts at a cheaper interest rate. Everything you owe through different financial institutions will be consolidated into one of the 14 DCP participating banks.
7. Talk to Your Bank
Despite their reputation for being cold, uncareful institutions (especially when you owe them money), banks may offer you alternative options to settle your outstanding credit card bills and unsecured debts through payments.
It is not in the bank’s interest that they earn more money from you. When, theoretically, you have no actual ability to repay and are at risk of defaulting.
Therefore, the point of restructuring your debt is to start paying off everything you owe. You are restoring your credit rating by making regular payments – in full and on schedule – when making strides toward clearing the loans.
8. Make A List of Providers
By broadening your pool of options, you can increase your chances of getting the loan you need. Seek to target non-bank financial institutions, such as Singapore Finance and others, alongside the banks. Such finance companies are accredited by Singapore’s Monetary Authority and have a variety of loans that could suit your needs.
Like banks, finance companies often focus on your credit rating and history as a borrower to determine your risk. Nevertheless, financial institutions may have different risk appetites or offer particular loan packages (such as higher interest rates) for which you can apply.
Good to Know: Quick FAQs
1. What Causes a Credit Score to Drop?
Some of the causes of a sudden drop in credit score are:
- Missed or late payments
- Change in credit limit
- A “hard inquiry” resulting from a new credit application
- Charging a large purchase on your credit card
- Closing your credit card
2. What are the Crucial Factors that Affect Credit Score?
Many factors affect your credit score, and experts say that the most crucial ones are your past payment history and credit utilization. Other factors are:
- The length of credit history
- Your mix of credit types
- Recent credit applications
3. How can I Improve My Credit Score?
Here are some things you can do to improve your credit score:
- Pay your bills on time. Payment history affects a significant part of your credit score. Having long and consistent on-time payments is always the best move. Try setting up calendar reminders or use the autopay feature on your banking apps.
- Avoid using more than 30% of your available credit. Again setting up alerts and balance notifications could be helpful. Making extra payments to maintain this utilization rate is also a smart move.
- Avoid opening new accounts and closing old ones. This move lowers your average age of accounts and may significantly hurt your credit score.
- Get a good mix of credit types. Different types of credit, like credit card accounts, personal loans, and secured loans, will help improve credit health。
4. How to Apply for a Low or Bad Credit Loan?
If you have bad credit scores, you may start with personal and payday loans. However, banks may offer these at higher interest rates based on your credit score. There is also a very high chance that your loan application will get denied as banks approve loans based on one’s credit scores.
If so, you may get these types of loans from licensed moneylenders. Aside from lenient credit checks and requirements, licensed moneylenders offer competitive interest rates, fast approvals, and quick disbursals of funds. Moreover, it is also an excellent way to rebuild your credit score.
Typical eligibility and requirements
For Banks
- Must be at least 21 years old
- Must be a Singapore Citizen or a Permanent Resident
- Minimum annual income of S$20,000
For Licensed Moneylenders
- Must be at least 18 years old
- Minimum monthly income of S$2,000
Final Thoughts
Accessing a personal loan with a bad credit score will be challenging for you. You can, however, access one. The key here is to borrow cautiously, which can help save you money and help you build your credit score. Having someone who trusts and knows you well enough to get the personal loan on your behalf, you could start.
Key Takeaways
- Education and understanding are paramount when securing a loan.
- The key to improving your credit score is consistency and willingness to change.
- Fixing your credit score may be a long process, but the long-term goal is achieving an improved credit score report rating.
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