Sometimes, we are faced with situations that necessitate taking a loan — be it a medical emergency, to supplement a property down payment or any other financial hurdle you may be facing. The truth is, loan applications may not be approved all the time.
So, if you are one of those who have applied for a personal loan from banks and had your application rejected, chances are that your credit score might be the reason behind this. Banks go through your credit score before determining whether to approve your personal loan application or not. If you have a bad credit score, your chances of getting a loan will be lower. On the other hand, licensed money lenders in Singapore are open to the idea of providing personal loans for bad credit.
But what defines a bad credit score? In what circumstances will you need a bad credit loan in Singapore? What can you do to increase your chances of securing a loan for bad credit? Keep reading on, and you’ll get all the answers to your burning questions.
What is a credit score?
A credit score is a statistical value assigned to borrowers which shows their likelihood of repaying debts. This is given by a rating company which individually and accurately assesses the creditworthiness of the borrower. It is also considered by lenders to determine the risk a credit applicant poses. The credit score is dependent on your active loans and credit lines, as well as other payment histories.
Financial institutions like banks typically receive a customer’s credit report from the Credit Bureau Singapore. Individuals who want to check their credit scores can also buy CBS reports on their own.
You will then be presented with a grade according to the score range that shows the chances of a loan default.
| Score Range | Risk Grade | Probability of Default | |
| Minimum | Maximum | ||
| 1911-2000 | AA | 0.00% | 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% | 3.46% |
| 1000-1723 | HH | 3.46% | 100.00% |
What defines a bad credit score and how does it happen?
As seen in the above table under the ‘HH’ risk grade, a bad credit score varies between 1000 and 1723. In order for you to learn what your credit score is and determine if action needs to be taken to improve your credit rating, you must first obtain your credit report..
If your credit score falls under the credit score range of the ‘HH’ risk grade, the possible causes include:
Defaults on loan payments
Failing to pay a loan signifies a loss for the bank, and this may lead to legal proceedings, freezing of assets, and employment troubles in finance or related industries. It is always best to seek assistance from the financial institution with loan restructuring rather than defaulting.
Delayed or partial payments
This serves as a red flag to banks or your chosen financial institution that you are unable to meet your financial obligations, causing your credit score to take a hit. Case in point, your credit score will suffer if you don’t repay your loans and other financial commitments in full, promptly.
Lack of credit history
Never taking up a loan or applying for a credit card doesn’t automatically mean you’ll have a high credit rating; this just means zero information for financial institutions to determine if you’re capable of repaying, hence can affect your eligibility in taking up a loan when you find yourself in a situation requiring one.
However, a lack of credit history doesn’t instantly disqualify you from loans or credit facilities; financial institutions understand that there’s a starting point for everyone’s financial journey. So, if you’re ready for a loan or credit card, ensure you manage payments efficiently as this will contribute to your creditworthiness.
Numerous credit facilities
Having multiple credit facilities can be helpful, provided that you manage payments in a timely manner. But if it’s more than you can take on financially, maxing out your credit cards continuously informs borrowers that you’re not adept at managing your finances, hence might be a risky candidate for additional credit facilities.
When should you consider a bad credit loan in Singapore?
A bad credit loan in Singapore is suitable for individuals with low credit scores and are not eligible for loans with banks. There are other non-bank financial institutions and legal lenders who offer loans for poor credit history.
With a loan for bad credit, borrowers can gain access to urgent funds and have the chance to rebuild their credit.
So, if you’re eligible for a bad credit personal loan in Singapore, go for the loan option and borrowing amount that’s within your financial means, and ensure you make an effort to budget and repay consistently in a punctual manner before your instalment due date.
Situations where you’ll need a loan for bad credit in Singapore
Financial emergencies: During times of crisis, having sufficient funds has never been more necessary and it is why a bad credit personal loan is of great importance. It can be used for a medical emergency, an urgent health check-up or topping up of medicine, or even an accident.
Delayed salary: In the event that your salary has been delayed due to unexpected circumstances, you might experience difficulty in paying important bills like insurance premiums, rent and utilities. As this may affect your daily life, a bad credit loan may come in handy.
Education loans or furthering studies: Personal loans for bad credit in Singapore can help with various financial situations, including education expenses. Whether it’s for your child or yourself, a bad credit loan may help with making tuition loan payments.
Wedding expenses: If the big day is ahead and sudden expenses that have popped up are making it difficult for your wallet or bank balance to bear, a much-needed loan for bad credit may help.
Ways to get a personal loan for bad credit in Singapore
Restructure and consolidate all your current loans
In case you have many debts, like several credit cards or multiple small loans from banks, you can consolidate them into a single loan. This will allow you to manage your debt better and build up your credit score more easily over time.
There are money lenders for bad credit, and the best lenders assist you in accomplishing the consolidation and restructuring by providing a loan according to your capacity to pay. They consolidate the debts in one account and find the minimum monthly payment that you can manage without risking the loss of your ability to pay for basic requirements such as utilities, rent, and food.
Take smaller loans
It is tough for lenders to provide a larger personal loan with bad credit. In such situations, you can choose to apply for smaller personal loans.
However, do not forget to make your loan repayments before their due date, and ensure you repay and manage these debts effectively. Doing so demonstrates that you can pay off these loans responsibly, thereby improving your credit history. Thereafter, your chances of getting loan approvals can improve significantly across loan providers.
Look for more options
You can also search for more options, such as getting a personal loan for bad credit in Singapore from a licensed lender.
Even with a bad credit score, all is not lost. Licensed lenders will still approve a bad credit loan, but may charge higher interest for it. But the good news is that licensed money lenders’ interest rates cannot go over 4% per month, as mandated by law.
In addition, these legal lenders also provide quick approval for loans, usually within 30 minutes to an hour. Licensed lenders are a great choice when you require a bad credit loan immediately and are rejected by banks due to poor credit score or history.
And unlike banks, licensed lenders do not impose minimum salary requirements, although the maximum loan amount you are eligible for is determined by your income.
Add a guarantor or apply for a joint loan
Another way of getting approved for your personal loan with bad credit is to choose a joint loan. In this type of loan, you can collaborate with someone (any family member such as your spouse) with a better credit score. It improves the chances of getting the loan approved as the other person stands as a co-applicant with the borrower who has a lower credit score.
Adding a guarantor reduces the credit risk for the lender as the guarantor or co-applicant is equally liable for loan repayment in case the primary borrower defaults.
Improve your credit score
There are a few ways to improve your credit score such as paying off debts on time, checking your credit report for errors, and questioning the errors.
When applying for loans from banks and financial institutions, it’s important to note that every loan application submitted to the Credit Bureau Singapore will trigger credit inquiries and potentially impact your credit score. Therefore, when you choose to begin applying for a loan, carry out your research thoroughly. Do not blindly apply for a loan from every loan provider you encounter.
However, it’s worth mentioning that loan applications made to licensed lenders are not recorded. Licensed lenders look at the Loan Information Report from the Moneylenders Credit Bureau instead, although some may also look at your CBS credit report for completeness of their own credit assessments.
Simply put, it takes time to improve your credit score. There is no solution to the problem of bad credit scores. Do your best to begin improving. Take note that licensed lenders’ repayments do not count towards building your CBS credit score or history!
Let a bad credit loan pave the way to a better financial future
Don’t lose hope if a bank rejects your loan application as there are many legal lenders who are willing to offer loans for poor credit history. So, if you’re urgently looking for a personal loan with bad credit, Cash Direct is one such lender you can approach; we assess each application on its merit and do not reject them for template reasons.
We’re a Jurong East money lender that provides legal loans in Singapore, secured and unsecured, for all kinds of financial needs. Ready to explore your options for a personal loan? Contact us today to discuss your needs and take the first step toward your financial goals.
