When you are trying to get a mortgage, a credit card or a personal loan, banks and financial institutions offering credit will look at one major thing: How much risk will they face when they approve your application? Will they have to worry about losing money due to late payments or defaulted loans?
Considering this fact that financial institutions would like to prevent bad loans, your credit application should reflect that you are a low-risk borrower. If your loan is approved, the interest rate will be based on your risk level. If you are a low-risk borrower, your loan’s interest rate is lower. If you are a high-risk borrower, your interest rates are higher. Even if you promise to pay your loans, people can lie easily and because of this, it is difficult for financial institutions to see which ones they can trust.
With one’s loan application, it can help these credit providers determine if you can pay off your loans and the interest rate that will be charged to you.
Financial institutions in Singapore have their own policies in terms of personal loans and the rates they will take into consideration to determine if you should get the loan you applied for. They also have different guidelines to consider based on the market’s current status. If you have a strong credit application, your applications will always be approved and give you the best rates.
Here are the major things a loan officer would look into when reviewing your loan application and how these things can make or break your application:
For loan officers, your credit score is the best way to determine if your credit risk. In Singapore, one’s credit score is based on a four-digit number which ranges from 1000 to 2000. If you scored around 1000, they will be seen as a high-risk client and possibly default their payments. For those who scored higher, they are considered low-risk clients.
Of course, even if the Credit Bureau Singapore – Singapore’s top authority in terms of providing clear and comprehensive credit data of each individual in the country – ranks you as a low-risk client, it may not be the same score the loan officer will use to determine your application. Each financial institution may vary on how they would determine one’s credit score aside from checking the CBS’ record.
One’s credit score is influenced by one’s credit history. Your credit history would detail how well you paid your past and present credits, your active and closed accounts and other credit-related history facts. Loan officers will check this part of your application closely to see if you can commit to repayments and you won’t risk your loans to default. Late repayments are black marks in any application, especially if you are 30 days late and more.
If your record has collections, legal action and garnishments such as bankruptcies or foreclosures, the loan officer will immediately take note of this because it indicates defaulted loans or credit. If you do have these in the record, it is best you provide a reasonable explanation for it so the loan officer can make exceptions if they are valid reasons.
Your past and present employment history will also make an impact in your credit application because this will ensure that you have a stable source of income to pay your personal loan. If you have been working long for a certain job, it will reflect that you have a secure income source. If you change jobs regularly, especially when it somehow times with your loan application, it may tell your loan officer that you may not have a regular income source and you are at risk of losing this job.
If you have not worked for the job for long, it is ok. If you switched jobs but still remain on the same industry, loan officers will see its job as the same line of employment.
Debt and Income
Another factor being considered in credit applications is your capacity to pay the new loan. The loan officer will look into your credit history and check how much debts you have and see if it makes sense with your income. Loan officers may ask for your income per month and see how each percentage is allotted for expenses and other aspects. If your credit history is good and you do pay your debts regularly, they would trust you with your application.
If you get denied, pay off your debts first, lower your monthly payments, or wait until your income improves. If you get a raise, wait for it to be applied and wait for a few months before you apply.
Depending on the loan you applied for, loan officers would also consider your property or your collateral’s value. If you fail to pay your loan, the collateral will be used as payment. A collateral gives a financial institution security because they can still get an asset if you default your loans and sell it to reclaim the amount they lost.
Of course, if you applied for an unsecured loan or loans without collateral, they will not be looking for a collateral. However, they will be wearier of your application since such loans present more risk of loss, especially if you stop paying your loans.
What’s your alternative?
If you cannot get an approval for your personal loans through a bank due to a problem on your credit history and requirements, there is another way you can get funds for your needs: seek a moneylender.
Singapore has a lot of licensed moneylenders people can choose from in case they need funds. Like banks, moneylenders offer loans of various types depending on the person’s needs.
Unlike banks which consider the noted factors above strictly to determine if you can pay off the loan, you are applying for. Even if you have a bad credit history or have no history at all, moneylenders can still approve your application if your supporting documents can support your paying capacity.
Of course, if you do have a bad credit history or no history, some moneylenders may be hesitant to accept your application depending on how bad your credit history is like.
Moneylenders, banks and other financial institutions don’t really want to restrict their services to users. However, the reason they may deny your request for a personal loan is that they also have to consider their other customers who are paying them regularly. Even if one bank or credit provider denies your application, others may reconsider and approve it.
If you feel as if you have problems with the five aspects above, immediately find a way to remedy the problem because it will make your future applications easier.