Bank loans are a popular choice for those who need a personal loan in Singapore. However, the process of getting one isn’t exactly the most straightforward, as there are several requirements to be fulfilled, such as credit history and annual income.
But even after gathering and submitting all the required documents – and waiting out the typical processing time of a few days – borrowers may still find their loan applications rejected. This can be frustrating, especially if you’re urgently in need of money.
Understanding what lenders are looking for when evaluating a loan application will help you better gauge your chances of success – and more importantly, decide if a bank loan is the best choice for you.
In this article, we will explain the five most crucial eligibility factors that impact your chances of getting a bank loan.
The Credit Bureau of Singapore maintains a record of credit scores for every borrower in Singapore.
Credit scores are used as the primary determinant of a borrower’s risk of default, and are calculated based on the following six factors:
- Utilisation pattern – the amount of credit amount owed/used on accounts by individuals
- Recent credit – applying for loans, credit cards, and other new credit facilities in quick succession may be seen as potentially overextending yourself
- Account delinquency data – late payments (delinquency) on your unsecured credit facilities will lower your credit score
- Credit account history – consumers with a longer account history are considered to be more reliable borrowers, compared to those with limited or no account history
- Available credit – the number of open or active credit facilities you have
- Enquiry activity – the number of new application enquiries applied to your account; each time a lender looks up your credit score, an enquiry is triggered. Having too many enquiries within a short time frame can impact your credit score.
Using the above, a borrower is assigned a rating from AA to HH – each grade has a different probability of default risk.
|Rating||Score||Likelihood of default|
|AA||1911 – 2000||0% to 0.27%|
|BB||1844 – 1910||0.27% to 0.67%|
|CC||1825 – 1843||0.67% to 0.88%|
|DD||1813 – 1824||0.88% to 1.03%|
|EE||1782 – 1812||1.03% to 1.58%|
|FF||1755 – 1781||1.58% to 2.28%|
|GG||1724 – 1754||2.28% to 3.46%|
|HH||1000 – 1723||3.46% to 100%|
As you can see, credit ratings are an important piece of information for lenders, which is why banks check your credit score when processing your loan. If your credit rating falls below the bank’s default risk threshold, your application will be rejected.
Meanwhile, those with credit scores that are low – but not so low to be ineligible for a loan – will likely be offered a higher interest rate.
To encourage responsible use of credit, consumers in Singapore have to abide by the borrowing limits placed on them.
Since 1 June 2019, the maximum amount of unsecured credit a borrower may take on is capped at 12 times your monthly income. If this limit is exceeded for three consecutive months, their unsecured credit facilities will be suspended.
This also includes loan applications; if your borrowing limits are exhausted, your loan will be denied. You’ll have to pay off some existing debt first to take on further loans.
This is one of the common obstacles that low-income earners face when trying to get a personal loan in Singapore.
Most bank loans require an annual income of at least S$20,000 to qualify (among other requirements). Hence, if your income level is not high enough, your bank loan application will be rejected.
Even if you earn enough to qualify for a personal loan, you may still face a disadvantage. This is because banks typically impose a higher interest rate on borrowers earning annual incomes of between S$20,000 and S$30,000, with more favourable interest rates reserved for higher earners.
Another often-overlooked but important criterion when applying for bank loans is your residency status.
The minimum annual income requirement of S$20,000 to S$30,000 mentioned above only applies to Singapore citizens or Permanent Residents (PR).
Many banks impose a higher annual income requirement on foreigners seeking a personal loan – starting from S$42,000, and in some cases, going up to $60,000 per year.
This means that non-citizens who hold Work Passes (WP) may find difficulty qualifying for a bank loan.
Your employment history is another important criterion when applying for a personal loan.
Many banks require you to submit your CPF statements when applying for a loan. You’ll need to provide the most recent six or nine months of statements, which should indicate steady employment throughout the period.
For those who are self-employed or earn a variable income (such as commission-based roles), you’ll need to provide your most recent tax returns.
Banks look into your employment history to gauge your ability to pay off your loan, and having steady employment or consistent income counts in your favour.
On the other hand, an employment history that is too short, or changing too many jobs within a short period, will likely harm your loan application, and may even cause your personal loan to be rejected.
5 important criteria to note when applying for personal loans in Singapore
Banks will conduct a credit score check when processing your loan application. A poor credit score can raise your interest rates, or cause your loan to be rejected.
Under prevailing rules, borrowers in Singapore cannot take on unsecured credit exceeding 12 times their monthly income. Doing so for more than three months will cause all credit facilities to be suspended.
Banks impose annual income thresholds to qualify for a personal loan. The minimum annual income for bank loans is S$20,000.
Non-citizens and foreigners are subject to higher annual income requirements than Singaporeans or PRs when applying for a bank loan.
An employment history that is too short or one that is filled with inconsistencies can negatively impact your chances of getting a bank loan.
Not everyone can apply for bank loans, especially if you fail to meet any of these five eligibility criteria.
As an alternative, consider getting a personal loan from a reliable licensed moneylender instead.
Synergy Credit offers personal loans that are fast and convenient – minimum credit checks, any annual income, or employment history can apply.
We process loan applications and disburse your approved loan within 30 minutes. Talk to our professional and friendly team to discuss your personal loan needs today.