Getting personal loans can be a faster way to get the cash you need for things like home renovations, medical bills you didn’t expect, the start of a business, or even a vacation.
But if you want to get a bank personal loan in Singapore, you will need to go through the step of client verification, which will affect how your loan application turns out in the end.
Personal loans, unlike secured loans like mortgages or car loans, aren’t usually backed by anything like a house or car. This is the main reason why personal loan applications must meet strict eligibility requirements before they can be approved.
Lenders look at a number of things when deciding whether to give a person a personal loan. These include the person’s credit score, income, ongoing EMIs, job, age, and past payment history.
Let’s take a closer look at the different things that come into play when banks and other financial institutions look at the personal loan applications that people send in.
Factors Considered by Banks before lending personal loan
By getting bank loan in Singapore, you might be able to grow your business and take it to new heights of success.
Banks are usually more careful when giving loans to self-employed people or business owners, you will need to show the bank your business plan and show that you have a good history of running a business well.
People who are in a bad situation, like having a lot of debt, so it is important to be clear about what you need and how you plan to pay it back. People who are in a bad situation will have a hard time getting loans from banks (such as having a lot of debt).
Banks often look at the “5 C’s of credit” when deciding whether or not to give you a personal loan. These are capacity, collateral, capital, character, and conditions.
Capacity
Before doing anything else, the bank will check to see if you can pay back the loan. When someone wants to get a loan, they have to give the bank a letter that says they give the bank permission to check their credit history.
Banks will look at both how well you’ve paid other people in the past and how much debt you already have.
The banks will then look at your income and figure out how well it covers your debt service. Most of the time, a bank will need a debt payment coverage ratio of at least 1.20 times.
Collateral
Due to the general possible risk, the bank may sometimes ask the applicant for collateral or security. Even the healthiest businesses can sometimes slow down because of things they couldn’t have planned for. This can make it hard for them to pay back loans.
What kind of collateral a bank can ask for depends on what kinds of assets it has. Real estate, business assets, pieces of equipment, cars, savings accounts, fixed deposits, and other financial instruments are all examples of these types of assets.
At the time a loan is approved, the borrower may have to give the bank permission to put a lien on any assets that are being used as collateral.
If you can’t pay back the loan, the lien may give the bank the right to take ownership of the assets and sell them to get the money it lost back.
Capital
Banks will look at your company’s financial history and record. They will also look at your company’s capital, which is the amount of money the company has available to use.
If the bank finds out that the company doesn’t have enough money, it can turn down the loan request because it may see the request as having too much risk.
Banks will also look at how much money you’ve already put into your business. This shows how much you care about the success of your business.
If the bank finds out that your personal finances are much better than those of the company, it is possible that the bank will still give you the loan as long as you provide a personal guarantee.
Character
Before deciding whether or not to give you a loan, a lender will do a thorough look into the history of your business, your references, and the reputation of your company.
Your chances of getting a personal loan are much higher if you and your business have good credit, a good reputation, and reliable references.
Even if you have a good credit score, banks may be hesitant to give you a loan if your company has a history of not paying its debts or a bad reputation, even if you meet all the other requirements.
Conditions
Even though you may not have much control over it, a bank will also look at how your business’s economy is doing.
Even if your business can meet the requirements for capacity and collateral, a bank may still say no to your loan request if you work in a high-risk industry.
This is because of a number of things, including the fact that the industry could suddenly go down, which would put the loan from the bank at risk.
To make it more likely that your loan application will be accepted, you will need to show that you can handle tough economic times and that you are good at running a risky business with a lot of knowledge.
Age
When deciding whether or not to give a loan, financial institutions look at a number of factors, such as the age of the applicant.
People between the ages of 30 and 50 are usually seen as financially stable, so banks give loans to people in that age range more often.
People in this age range have worked for a few years and still have a few years left to pay back their personal loan without much trouble.
People over the age of 60 may find it hard to get a personal loan, and they may have to put up collateral before a bank will approve their loan application.
Experience
One of the most important things banks look at is how much experience someone has. For example, someone with 15 years of experience will be chosen over someone who is just starting out or who has only two or three years of experience.
When deciding who gets a loan, banks like to see that a potential borrower has been working in the same field for a while.
If a person has a history of changing jobs often, a bank might be hesitant to give them a loan quickly.
Loan Amount and Repayment Period
The amount of time borrowers have to pay back their loans is another thing that banks take into account when deciding how much to lend. Most of the time, they give priority to applicants who choose a faster payback plan.
For example, someone who asks for a shorter loan repayment period of two to three years will be given priority over someone who asks for a longer loan repayment period of ten years or more, and so on.
Credit Score
When a salaried professional applies for a personal loan, a lender will look at the applicant’s credit score as the first step in deciding whether or not to approve the loan.
If your credit score is over 700, which is considered good, you may be able to get loans with lower interest rates. Your credit score shows how likely you are to be able to pay back a loan based on your financial history.
Your credit score is based on the different types of loans you are currently paying off or have paid off in the past.
Your credit score is based on how much debt you have, how often you have paid off loans, how often you have paid off credit card debt, and how many monthly installment payments you have missed.
Current Income
The bank will look at more than just your regular expenses and sources of income when deciding how much money to lend you.
Representatives from the bank will look at how much debt you already have before agreeing to give you another loan. This includes any home or car loans you still have to pay off, as well as your regular bills and expenses.
Lenders will look at your debt-to-income ratio, which is your total monthly debt payments divided by your gross monthly income. At the very least, your total debt should be less than half of what you earn each year.
Employment History
The applicant’s work history is also looked at as more proof of their income and stability.
Before giving out loans, creditors want loan applicants to show proof that they have a steady source of income.
High-risk borrowers are people who apply for loans but often change jobs or don’t have a steady source of income.
A good employment history shows that you have been working in the same field for a long time and that you have kept steady work.
Even though this is the case, you don’t have to have worked for the same company for your whole career.
People who work for themselves are usually looked at more closely than people who get a steady paycheck every month.
Occupation
Your job is another important thing that will be taken into account when looking at your loan application. Some jobs, like working for the government or a public or private university, are more appealing to banks than others.
After that, banks give priority to people who work for “blue-chip” companies and other safe professions, like doctors, chartered accountants, engineers, and lawyers.
Most of the time, the least attention is paid to applicants who work for themselves or for a private company.
If a person applies for a loan while working for a company that has a bad history of paying its employees’ salaries, the application is not likely to be approved.
A candidate who is known for switching jobs often gives off the same kind of bad impression as the first candidate.
But bank applications are looked at the same way no matter if the applicant works for the government or the private sector.
Repayment History
The borrower’s history with credit and paying back loans is another important thing that banks look at.
Unpaid debts can stay on your credit report for up to seven years. This can hurt your credit score and make it harder for you to get loans.
Banks may be hesitant to give you a personal loan if you have a history of not paying back loans on time or if you have debts that you haven’t paid off.
Amount of Loan
One of the most important things that financial institutions look at is how much credit the borrower has asked for.
When the loan amount is higher, the bank will do a more thorough underwriting, and it may also ask for collateral to reduce its risk.
On the other hand, a loan application for a smaller amount of money can be approved more quickly if you have a good relationship with the bank.
Before agreeing to lend you the amount you want, a bank will look at your whole financial history and other factors, such as your ability to pay back the loan.
Things to consider when looking for the best bank to apply personal loan in Singapore
Before you immediately start filling out a bank personal loan application, there are a few things you should think about first:
Types of Personal Loans available
Most of the time, a person can get a personal loan that isn’t secured for up to ten times their monthly salary.
Most of the time, the bank interest rate on an unsecured personal loan is higher because the borrower doesn’t have to put up anything as collateral. When a borrower falls behind on payments, the lender can take legal action to get the money back.
Check out equity loans if you want a personal loan with a longer repayment period, a lower interest rate, and a higher loan amount than what traditional options with an offer.
If you get a loan based on your equity, you can use the value of your home as collateral. A loan against the equity in your home can be a much cheaper way to borrow money than an unsecured personal loan, especially if the value of your home has gone up over the years.
Is a bank personal loan the best for you?
On the market, there are a lot of loan products to choose from. If you make the right choice, it will better meet your needs and allow you to save both time and money.
For example, instead of getting a personal loan, you could apply for a loan to consolidate your debts. This would let you pay off larger amounts of credit card debt all at once.
If you want to fix up your house, you might want to get a loan for home improvements instead of a personal loan so you can use the equity you’ve built up in your property.
The amount you can borrow
Just like with any other loan, there is a maximum amount that each person can borrow. Even though the amounts available for personal loans are often less than those available for mortgages or business loans, the maximum loan amount that can be approved depends on a number of factors, such as your credit score and income.
In a more immediate sense, if you are thinking about getting a loan, you should first look at what you already own. If you look at how much money you make and how much you spend, you should be able to figure out how much money you can borrow.
Choosing the right lender for your Personal Loan in Singapore
When there are so many banks and credit unions that offer the best personal loans, it can be hard to know where to start looking.
If you don’t know the right questions to ask, it may be hard to figure out which position you should apply for.
You’ll find that every lender, bank, and other financial institution has its own unique products, interest rates, and terms and that these things are all different from one another.
The next big problem will be deciding what to use as a comparison point. Why go through the trouble of looking for a loan when you can get free help choosing the best loan product from the many options?