Getting a Loan from a Bank even with Bad Credit

Whether you want to meet a short-term expense like buying home appliances, going on a vacation or dealing with an emergency or you want to meet a long-term expense like acquiring an asset like a property, a condo or a car, as a typical Singaporean you will turn to a bank for a personal loan, a home loan, an auto loan or any other credit facility.

Which is why the consumer lending statistics published by the Monetary Authority of Singapore for the month of August 2016* indicate total consumer loans at S$ 246,533.4 million!

However, getting a loan can potentially run into a major stumbling block – bad credit scores. Let us explore this topic in a little more detail:

What is a credit report#?

When you apply for a loan, the bank to which you’ve applied will check your creditworthiness before it decides whether to extend a loan to you. Your creditworthiness is determined by your credit report. Your credit report will usually contain the following:

▪ Your personal data – Information such as your name, NRIC & date of birth
▪ Your current credit relationship summary – Summary of the number of credit facilities you hold & any defaults thereon
▪ Your credit facilities information – Information on the credit facilities you have with the bureau’s members & your repayment history for the last 12 months
▪ Inquiries summary – Number & type of inquiries by financial institutions into your credit report
▪ Default records – Information on any default in repaying your credit facilities, including the balance outstanding & the current status of the account
▪ Bankruptcy records – Information on whether any bankruptcy proceedings have been taken against you, obtained from the Insolvency and Public Trustees Office & displayed for 5 years from the date of discharge

Who provides your credit report?

There are only 2 credit bureaus that have been accredited by the Monetary Authority of Singapore (MAS) – Credit Bureau Singapore (CBS) and DP Credit Bureau (DPCB). Only these organizations can provide you with your credit report.

How can you view your credit report?

You can buy your credit report from the two recognized bureaus either online or by visiting the bureaus at their offices. You will need your SingPass ID and password. You may also need to pay transaction fees for purchasing your credit report.

You can also consider monitoring your credit score by subscribing to the “My Credit Monitor (MCM) service offered by CBS. This service alerts you to any suspicious activities like identity theft or changes that can affect your credit reputation. You can sign up for it at any Singapore Post branch or at CBS’ main office.

Why do I need my credit report?

Your credit report will help you understand whether your credit worthiness (or credit score) is high or not. When you know your credit score is high you can safely apply for that loan; when your credit score is bad, you will need to take corrective action to avoid your loan application from getting rejected or getting an approval for a lesser loan amount.

Should there be discrepancies, or if you disagree with some information in your credit report, you can write to the respective credit bureaus with your clarifications. A notice will be posted in your credit file while the credit bureau investigates. If an amendment is subsequently made, a revised report will be sent to all credit bureau members who have made inquiries on you in the past 3 months.

What can I do to bring my credit score up again^?

Take these broad tips into consideration as you go about repairing your credit score:

▪ Repay outstanding/overdue credit on time
▪ Keep the number of credit facilities manageable
▪ Clear bankruptcy / litigation
▪ Check your consumer credit report regularly (at least annually) to ensure there are no errors reported. This is especially important when you intend to apply for new loans or credit facilities.

* This includes the following categories: housing and bridging loans, car loans, credit cards, share financing and others.
# Data source: eCitizen portal of the Government of Singapore.
^ Data source: DP Credit Bureau Singapore.

Questions to Ask about Home Loans

A home loan represents a major financial commitment, sometimes the largest financial commitment a home buyer like you may take on during your lifetime. Given the significance it is important that you stay prepared when about to take on a home loan. These questions will hopefully help you gauge your preparedness:

Are you Ready?

We are talking about financial preparedness here. You can measure your financial readiness through the following measures:

TDSR

The Total Debt Servicing Ratio is the ratio of your income and liabilities. The Monetary Authority of Singapore (MAS) had, in June 2013, capped TDSR on property loans to 60% to encourage prudent borrowing. Your consolidated debt repayments including your home loan repayment, car loans, renovation loans, study loans, credit card loans and other secured or unsecured loans cannot exceed 60%. And, incomes that include variable components are subject to prescribed haircuts before TDSR is applied.

LTV

The Loan-to-Value ratio is the amount of loan taken out on a property in relation to its value expressed as a percentage. Since the introduction of the TDSR framework for property loans by the MAS, which came into effect from the 29th of June 2013, the maximum Loan to Value (LTV) that can be borrowed is 90%. LTV will vary based on different scenarios.

Credit Score

Get to know your credit score by applying for it along with the relevant fee. The higher your score the better the chances of your getting that housing loan. There are only two bureaus gazetted by the Monetary Authority of Singapore (MAS): the Credit Bureau (Singapore) Pte Ltd and the DP Credit Bureau Pte Ltd.

Do I Need to Know about Refinancing?

Yes. Refinancing, when smartly used, comes with a number of benefits that can help you deal with your current financial situation better. Refinancing refers to switching your existing home loan to a different financial institution usually to benefit from lower interest rates.

But before you refinance check out Notice 632 penalties; these can be levied if you are still in the lock-in or claw-back period. Try and refinance only if you get a rate that is low enough to offset the penalties imposed or sit tight and wait out your lock-in period.

In September 2016, the MAS fine-tuned* the TDSR Rules especially with regard to refinancing to allow borrowers more flexibility in managing their debt obligations. As per this new measure, the MAS has exempted the refinancing of owner-occupied housing loans and investment property loans from the TDSR framework subject to certain financial prudence-related conditions.

Do you need Expert Advice?

It sometimes happens that the sheer amount of detailing and fine print associated with housing loans and the whole process of selecting a home and getting a loan can overwhelm even the best of us. In such a case try taking the help of an expert. Just make sure that they are suitably certified; if, for instance, you are approaching a financial adviser make sure that s/he is qualified under the Financial Advisers Act.

What we’ve covered here merely represents a microcosm of the home loan universe. Use these tips as a starting point and dive in, start exploring and take every possible opportunity to expand your knowledge.

* Data source: Monetary Authority of Singapore – TDSR Rules on Refinancing Fine-tuned.

How to get the Best Personal Loan in Singapore?

Consider the following statistic published by the Monetary Authority of Singapore (as on August 2016) relating to consumer loans (personal loans fall under this category): the total amount of consumer loans (not including car loans, credit cards and share financing) stood at S$38,014.3 million! Yep, we live in a consumerist society!

Ok, lets explore a few aspects of personal loans that just might include a few insider tips on getting yourself the best personal loan available:

Why are Personal Loans so Popular?

  • Because they are unsecured – they don’t require any collateral. You don’t need to pledge your house, your car, your blue-chip holdings or your family jewels.
  • Their interest rates don’t pack the punch that credit card (another unsecured loan product) interest rates do.
  • Because you have the freedom to do what you want with the loan proceeds – whether that is getting some useful appliances for your home or blowing it away on a junket to Phuket.

How do I Nail that Juicy Personal Loan?

Now, that we’ve done with the obvious, lets get down to the essentials:

Get your Credit in Good Standing

Don’t know your credit score yet? There are currently two consumer credit bureaus in Singapore, namely Credit Bureau (Singapore) Pte Ltd and DP Credit Bureau Pte Ltd, recognised by MAS to collect and disclose borrower credit information to their members.

Apply to one of them and check your actual credit score. Then try and understand whether it is good enough or not. If not, research on what needs to be done to repair your credit score. The MoneySENSE website (http://www.moneysense.gov.sg/) spearheaded by the Financial Education Steering Committee (FESC) which in turn is chaired by the Monetary Authority of Singapore (MAS), is a great place to start.

Are your Finances in Order?

Did you know that the MAS works closely with government agencies to implement policies to encourage financial prudence among Singaporean households*? For example, the maximum amount of unsecured borrowings (and this includes personal loans) by any individual is generally capped at 4 months’ income per lender. This is regardless of whether he borrows from a financial institution regulated by MAS, or a moneylender regulated by MinLaw.

Are you Eligible?

Assuming that you’ve gone successfully past the first two steps, you will need to check whether you are actually eligible for that personal loan. For example, Citibank expects you (Singaporean/PR) to have a minimum annual income of S$30,000.

Start Shopping Around

Don’t just automatically assume that the lowest interest rate loan wins. Sometimes, other factors may matter. Tenure, for instance. You may want a longer tenured loan. While some banks give you loans of up to 5 years, HSBC provides you with the longest tenure – 7 years.

Also, start messing around with loan calculators and keep visiting third-party websites where you can get to compare loans from different banks; you just might dig yourself up a personal loan gold nugget.

View previous discussions on Pros and Cons of Personal Loans for a broader outlook.

*Reply to Parliamentary Question on Singapore’s Household Debt Ratio
(http://www.mas.gov.sg/news-and-publications/parliamentary-replies/2014/reply-to-parliamentary-question-on-singapore-household-debt-ratio.aspx)

HOME MORTGAGE LOAN REFINANCE

Refinancing a Housing Loan or mortgage refinancing refers to switching your existing home loan to a different bank or through any financial institution. With smartly planned, it provides you with a number of benefits and let’s explore these in a little more detail:

Securing a Lower Interest Rate on your Loan

One of the best reasons to refinance is to lower the interest rate on your existing loan. Reducing your interest rate not only helps to save money, but it increases the rate at which you build equity in your home, and also reduces the size of your monthly payments.

Extending/Shortening the Loan’s Term

Refinancing helps you to alter your loan period, depending upon your needs. If you have any monthly cash flow issues, you can refinance and extend your loan period; this allows you to make lesser monthly installments.

You can also use refinancing to shorten your loan period. If your financial situation is better and you can make greater payments, then in such instances you can think about refinancing especially if your existing home loan package does not have flexible prepayment options.

Comparison between Adjustable-Rate and Fixed-Rate Mortgages

When shopping for a mortgage, one of the first decisions most borrowers will face is whether to take out a fixed or floating rate loan.

Adjustable-Rate Mortgage

An ARM interest rate may rise or fall after the fixed period based on the market or index rates. It usually offers lower interest rates than fixed-rate mortgages, periodic adjustments often result in the increased rates higher than the available fixed-rate mortgage.

Fixed-Rate Mortgage

As the name suggests, a fixed rate loan has its interest rate fixed. Typically, fixed rate has interest rates that are higher than a floating rate loan. When the fixed-rate period ends, the monthly payment adjusts based on the type of loan you have.

Cashing Out

This is possible when the market value of your property increases significantly. Refinancing enables you to cash out the added value of your property; you can use this cash for your personal requirements. But remember, cashing out is like taking an additional “top-up” loan amount; which enables you to repay the entire amount including the “top-up”.

Consolidating Home Loans

If you have a couple of loans running simultaneously then you will obviously face logistics issues like – keeping track of different loans, different payment dates, ensuring your bank account is adequately funded on loan deduction dates, etc. In such cases, you could use a refinancing plan to consolidate all your mortgage loans into one convenient loan package. Many homeowners refinance in order to consolidate their debt. Replacing a higher interest debt with a low-interest mortgage is a good idea.

HIGH RISK PERSONAL LOANS

High risk personal loans are provided to those with a bad credit history. It usually comes out with higher interest rates. At times, people may come across a situation, where they need money urgently. In such cases, high risk personal loans could be the only way out. In Singapore there a quite a few banks who offer high risk personal loans to people who have default payments and a bad credit score. Here, we will go about the pros and cons of high risk personal loans in detail:

PROS AND CONS OF HIGH RISK PERSONAL LOANS

Pros of High Risk Personal Loans

High risk personal loans offer many benefits. Here are some of the important ones.

1. Available for Anyone

The biggest advantage of unsecured loans is they make it possible for anyone to get cash based on their financial responsibilities in times of an emergency. Whether you’re a tenant or a homeowner, you can borrow money without putting up any collateral.

2. No Risk to your Property

For those who own a house or any property and not interested to risk it, an unsecured loan is the solution since it doesn’t directly pose a risk to it or to your assets.

3. Fast Processing

Unsecured loans are usually in small amounts, so the loan completion is much quicker compared to the secured loans. The loan application can be processed within 2-3 working days and as soon as the application is processed the money will be credited to your specific bank account.

Cons of High Risk Personal Loans

Despite of the apparent benefits, high risk personal loans do have a fair share of drawbacks. Prominent amongst them are as follows.

1. High Interest Rates

The biggest drawback of a high risk personal loan is that they charge high interest rates for your loan and so your overall cost of borrowing will be very high as well. Borrowers with bad credit will face higher interest rates on an unsecured bad credit loan.

2. Limited Loan amounts

If you need to borrow a substantial sum of money, an unsecured loan is not the solution for you; unsecured loans are given in small amounts.

3. Lack of Flexibility

Most lenders don’t allow partial payment of loans. This means you will end up paying the entire tenure of the loan which is quite expensive. Also, if you wish to pay off the loan sooner, you will face an early repayment fine.

Compare the Personal Loan Interest Rates in Singapore

Almost all banks in Singapore offer personal loans and you could even try checking out with financial comparison websites. They allow you to compare financial loan products from different banks based on criteria like monthly interest rate, annual interest rate, maximum loan amount based on the salary, maximum repayment tenor, administration fees etc. The interest rates and repayment amount vary from bank to bank and from account product to product, ranging from ludicrous to the fairly reasonable.

Compare and see which bank offer personal loans with best interest rates in the market based on your needs and requirements.

Bank

Card Name

Interest Rate

Monthly Repayment

Citibank

Citibank Ready Credit PayLite

4.55%

S$157

Standard Chartered

Standard Chartered CashOne

8.38%

S$173

HSBC

HSBC Personal Loan

8.10%

S$172

DBS

DBS Personal Loan

6.80%

S$167

Think carefully before applying for a loan and avoid over-borrowing. Remember to repay on time after taking out a loan to avoid additional expenses on finance charges.

Pros and Cons of Personal Loans

Data published by the Monetary Authority of Singapore (MAS) indicates that personal loan borrowings (Consumer Loans – Professional and Private Individuals – Others) in Singapore during Jan 2016 touched S$37,054.3 million! It is apparent that personal loans are a highly popular financial product. So, in this issue we will turn our attention to the pros and cons of personal loans in Singapore.

Pros of Personal Loans

No collateral – Personal loans do not require any collateral. This is unlike mortgage or auto loans where your house or vehicle is pledged to the financial institution.

No restrictions on use – Personal loan amounts can be put to whatever use you deem fit. Whether you want to finance your dream vacation or buy that latest gadget or get a set a household appliances or use it for an emergency or whatever you want to, you are free to do so. Compare this with other loan products like home loans, car loans or education loans where the loan amount can be used only for the particular purpose for which it is borrowed.

Lower interest rate – Personal loans are available at far cheaper rates than cash advances on your credit card.

Documentation requirements – You also need to submit lesser number of documents for availing of a personal loan vis-à-vis home loans or car loans.

Quicker disbursal – Lesser documents result in lesser processing time; personal loans can be disbursed faster than home loans or other collateralized loan products.

Building a good credit score – Take a personal loan, pay all your installments on time and wrap up the loan in good time and see the positive impact this leaves on your credit scores. Complete a personal loan without any defaults and apply to the Credit Bureau (Singapore) Pte Ltd or the DP Credit Bureau Pte Ltd, the only two credit bureaus gazetted by MAS and allowed to collect credit information on individuals from financial institutions, for your credit report and you will see your credit scores have only improved for the better!

Cons of Personal Loans

The unsecured nature of personal loans has a substantial impact on various lending criteria:

Eligibility criteria are stricter than for certain types of secured loans. This could be reflected in higher income requirements, age restrictions (older persons may not find it easy to get a personal loan),

Credit scores – The unsecured nature of personal loans could also result in lenders requiring potential borrowers to have good credit standing before they release a loan.

Interest rates – Interest rates on personal loans are usually higher / much higher than rates on secured loans like home loans or auto loans.

Part payments – Many secured loan products allow borrowers to make part-payments towards their loan outstanding; this helps them reduce both the principal- and interest-related outgoings. Personal loan products do not allow such part payments.

Personal loans from moneylenders – It has become fairly common amongest those Singaporeans who find it difficult to get personal loans from mainstream banks / financial institutions to approach moneylenders. But, beware! Borrowing from an unlicensed moneylender at usurious terms could push you into a deeper financial quagmire. It is highly recommended that apply personal loan through reputed banks or financial institutions in Singapore.

If borrowing from a moneylender check the Ministry of Law’s Registry of Moneylenders and also their very informative “Guide to borrowing from moneylenders”.