What To Do If My Personal Loan Gets Rejected? Key Things Singaporeans Need to Know About

Living in a first-class city like Singapore has its perks. While this life comes with convenience and infrastructure, the upkeep is one of the most expensive in the world. Whether it’s home renovations, weddings, emergency medical expenses, sustaining businesses, or consolidating existing credit card debt and loans, it requires substantial cost to pay for expenses here. 

Enter personal loans—the quick infusion of funds to navigate your financial commitments. They typically require no collateral and feature fixed interest rates (from 2.8% p.a.), providing stability against Fed rate hikes. However, like any types of loans, careful consideration is essential. 

With rising default rates ($20.74 million written-off in March), banks are tightening their approval standards, which can lead to higher rejections. By addressing key factors to enhance your financial standing, you can increase your chances of securing a loan. We examine the main aspects of the personal loan process, and what you should do if your application is rejected.

 

Reasons for loan rejection

Like most loans in Singapore, personal loans share a common approval criteria. Here are key factors that may influence your application’s rejection:

1. You have low credit score/credit history 

Your credit score is a measure of your creditworthiness and ability to repay debts. Banks and financial institutions use this to assess the risk of lending money to you. If you have a low credit score, it indicates that you may have a history of late payments, defaults, or even potential for bankruptcy. 

These factors can make you a high-risk borrower. Banks may be reluctant to approve or will reject your loan application. Here’s a table outlining the risk of default associated with each credit score: 

Score Range	Risk Grade	Probability of Default (%)
		Min	Max
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%

Source: Yahoo! Finance

On this scale, a score of 1,000 to 1,723 would count as a bad credit rating, with a significant likelihood of defaulting up to 100%. To be considered low-risk, you should aim for a score between 1,844 and (optimally) 2,000, as outlined by the Credit Bureau of Singapore (CBS). 

This range encompasses BB and AA grades, which are viewed most favorably. Want to check your credit score? Request a copy via these following portals:

Submit online request on CBS website	Note: The service might not be available during these hours: Daily: 5-6am Month end: 12-7am (maintenance works)
Request at any SingPost branch: There are 57 SingPost branches; find a branch near you.	Upon receiving the application form from the SingPost branch, CBS will process and send the report to you via your chosen method(s) of delivery within 1 business day (from the date of receipt of the application form and all necessary supporting documents from SingPost).
Enquire directly at CBS main office: Address: 2 Shenton Way, #20-02, SGX Centre 1, Singapore 068804 Opening hours: Mon-Fri, 9am-6pm Hotline: 6565 6363	Upon successful form verification and completion, CBS will process your request and provide you with a copy of your credit report. You can collect it on the spot, should you opt for either a hardcopy or softcopy. Furthermore, if you want it sent via your registered mail, CBS will mail to your address within the same day.

Source: MoneySmart

2. You are currently unemployed/ unable to sustain continuous employment

Banks are usually more hesitant to lend you if you have an unstable employment record. This includes circumstances such as:

• Those who are newly-employed or frequently change jobs; 
• Have irregular income sources (i.e. freelance work etc.)  

In Singapore, most banks require you to stay employed for at least 3-6 months and earn an annual income of $30,000 to qualify. You can still get loans with lower income, although the loanable amount may be smaller with a more arduous approval process. Here’s the loan amount you may be eligible for, considering your current salary: 

Annual Income	Singaporeans / PRs
Less than $10,000	$3000
$10,000 to less than $20,000	$3000
$20,000 and above	6x your monthly income

Source: Credit21 

For freelancers and self-employed individuals who cannot obtain payslips or are in a cash-based-only gig, your CPF contribution history statement for the past 12 months can be used to prove your income and employment history. 

Alternatively, if you’re unemployed and don’t have sufficient income to back your application, you can consider getting a secured loan. As the name suggests, a secured loan requires collateral (property, bonds, stocks or your savings account). 

Note: Secured loans typically offer lower interest rates (e.g., 2.28% p.a. for car loans and 2.6% p.a. for HDB loans). However, if you default on the loan, lenders can seize the collateral and liquidate to offset their losses. Hence, it is wise to only use assets you are comfortable losing.

On the other hand, if you are unemployed and seeking urgent loans, here’s a list of reliable personal loans for unemployed individuals in Singapore. 

3. You are facing bankrupt proceedings 

If you are an undischarged bankrupt, or are currently facing legal proceedings, chances are your personal loan will be rejected. Bankruptcy transfers control of your assets and personal finances to a court-appointed Official Assignee, with the priority of paying off your creditors. 

While bankrupt, the maximum loan you can borrow is $500. Any attempts to borrow more will be rejected. Note that any bankruptcy proceeding will be recorded in your credit report and expunged only five years after your bankruptcy status is officially discharged.

4. You have a high debt to income ratio

Typically, banks examine your financial history and existing liabilities to determine your Total Debt Servicing Ratio (TDSR). This ratio helps lenders assess your ability to repay while ensuring your total debt does not exceed 55% of your income. 

Should your TDSR exceed this threshold, banks will consider you to be a high risk and decline your application. Moreover, the highest amount for unsecured loans, covering personal, education, and renovation loans, along with credit cards and debts, is set at 12 times your monthly income by the Monetary Authority of Singapore (MAS).

If you’ve already borrowed up to 10 times your monthly income, the maximum potential loan amount allowed would be limited to two times your monthly income.. 

5. You make too many application attempts over a short period

The number of times you apply for a new loan is another thing to be mindful of. Too many applications within a two-year period can negatively impact your credit score. Financial institutions see this as another sign of financial instability, making it harder to secure loans in the future.

6. Something as simple as documentation errors 

This may seem like a no-brainer, but missteps in your documentation can cause you to be rejected. As such, ensuring that you have everything in order before applying saves you the time and energy. Here are the key information needed to assess your loans: 

• Your NRIC
• Proof of income (e.g. payslips from the last 3 months) 
• Bank statements
• Tax returns
• Business licenses
• Articles of incorporation
• Personal financial statements
• Recent income tax notices (if you’re self-employed)

 

How to avoid future loan rejections

First, improve your credit score

There’s no way around it—improving your credit score is critical to regain banks/ moneylenders’ trust and secure your future loan approvals. Here are a few ways to achieve a healthy credit score: 

• Paying your bills on time

It is one of the simplest strategies yet most significant in determining your credit score. Constant late payments severely impact your score. Setting up automatic payments via GIRO or reminders to prevent the likelihood of missing the due date. 

• Reducing outstanding debt 

Consider paying off smaller debts first to free up more funds to tackle larger debts. Also, avoid applying for new credit unless absolutely necessary. Each application can lower your score as well, impacting future approvals if it falls below 1844-2000.

• Monitoring your credit report

Incorrect personal information or accounts that don’t belong to you can negatively affect your score. Be sure to double-check and contact CBS immediately, should there be any error in your documentation. 

Second, increase your income or reduce your debt 

It is laborious, but consider taking on additional work i.e. part-time jobs, freelancing, or gig economy opportunities to help increase your regular income. These extra gains can be used to pay off existing debts faster and improve your TDSR. 

Budgeting is another effective (and viable) strategy. By creating a detailed budget, you identify areas to cut expenses and redirect those savings towards repaying debt.

Third, reassess your loan requirements & adjust the amount

Loan rejections occur because the requested amount is too high relative to your income or financial situation.

• Take a step back and reassess your needs 

It can be beneficial to apply for smaller amounts. Not only does it increase the likelihood of approval, it also ensures that you can comfortably manage the repayments without financial strain.

• Review your financial goals and determine how much you actually need to borrow. 

Consider alternative methods to meet your financial needs—i.e. cutting expenses or saving more aggressively. Have a clear plan for how you will use the loan funds. Banks are more likely to approve a loan if you have a well thought-out plan for its use and repayment.

When in doubt, check out MoneySmart’s calculation for the best personal and home loans in Singapore.

 

Are there alternative financing options out there

Government-approved moneylenders 

If you’re still unsuccessful in applying through a bank, you can turn to a licensed moneylender. 

The MOM publishes a list of 156 licensed moneylenders. Shop around to find a licensed moneylender that offers the best terms. However, moneylender interest rates can be quite high, charging up to 4% per month, as compared to that offered by major banks (around 2.68% to 2.9% p.a.).  

 

Refinancing personal loans for debt consolidation 

Refinancing is another solid bet, replacing your existing loan with a new one from a different lender. This is often done to secure a lower interest rate, leading to lower monthly payments and significant long-term savings. Check out our list of the best debt consolidation plans out there in 2024.

 

When to find help for your personal loans application 

Navigating the various steps of personal loan applications and managing your credit score may require professional help. Here are some situations where assistance is invaluable: 

• Need help building a creditworthy profile: If you have a low credit score or limited credit history, a financial advisor can recommend strategies to improve your score and build a solid foundation.
• Unsure about loan options: With numerous loans available, choosing the right one for your needs can be overwhelming. A financial advisor can analyse your financial situation and recommend the best product with favorable terms.
• Struggling with debt management: If you’re dealing with high levels of debt, a debt counselor can help to create a customised repayment plan and negotiate with creditors.
• Complex financial situation: For individuals with complex financial situations or self-employed business owners, a financial advisor can provide tailored guidance and support to prepare for a successful loan application.

Closing thoughts 

Understanding key considerations for rejection and taking proactive steps to improve your financial profile can increase your chances of securing approval for your loan applications. If you’re feeling a bit kiasu (like every Singaporean), consider onboarding a financial advisor to optimise your credit worthiness and suitable loan options. Ultimately, responsible borrowing and long-term financial planning are essential to achieving your financial goals.