We’ve been receiving questions from readers about whether they can qualify for a personal loan. We figure you’ve got to be pretty desperate if you’re actually writing in to ask us instead of just calling up the bank, and we’re always fans of the underdog, so we’re here to help.
So maybe you’ve fallen on hard times and desperately need to pay some medical bills before the doctor implants something in your skull as revenge. Or maybe you’re buying a new laptop for work after your previous one got struck by lightning (in your office). Whatever the reason, here’s how to know if the bank gods will smile upon you.
Age
If you’re looking for a way to buy a new Xbox without your parents finding out, forget it. You need to be at least 21. However, if you’re over 65, lots of banks will shut you out, too.
Income
Unfortunately, nobody wants to lend money to someone who has none. It’s the law of the jungle. If you’re jobless, you’re going to have a tough time borrowing money.
Most local banks and financial institutions require a minimum income of at least $20,000 to $30,000 a year. If you’re self-employed or earn a commission-based salary, some banks might raise this to, say, $40,000. Foreigners will need to demonstrate a high income, usually in the $40,000 range.
Credit score
Just like drunken photos on Facebook, your credit score can come back to haunt you again and again. If you’ve been regularly failing to pay your credit card bills on time or defaulting on your home loan repayments, don’t be surprised if banks turn up their noses at your application.
Debt
So you’ve satisfied the minimum income, phew! Now you can borrow a million bucks, right? Not quite. Just because you make it into the Express stream doesn’t mean you’re on the fast-track to medical school, okay? You might meet the eligibility criteria to get a personal loan, but your income will also affect the amount you’re allowed to borrow.
A typical rule is that you’ll only be allowed to borrow up to 2 to 4 times your monthly income. If you earn $3,000 a month, this means you can borrow up to $12,000. Expect this amount to fall if you’re self-employed or a business owner.
Employment duration
Pregnant lady goes for a job interview. She is rejected on the grounds that her university grades weren’t good enough. Sorry, that’s the way the big, bad world works.
Similarly, while banks and licensed moneylenders might not say exactly how long you should have been employed, it’s an unspoken rule that you should have a track record of employment for at least 3 or 4 months.
Some moneylenders will reject you outright if you can’t show 3 months’ worth of salary or CPF contributions. So the right time to apply for a personal loan is not when you’ve just enjoyed a 6 month backpacking trip in the Himalayas.
Monthly payments and interest rates
Personal loans are some of the most expensive loans on the market, because, well, you could be using the money to buy instruments for your underground meth lab for all the bank knows.
Interest rates currently range from 3% to 6%, while the loan tenure is typically between 1-5 years, although the longest available tenure is 7 years for larger amounts. Check out MoneySmart’s personal loan comparison tool to compare interest rates and work out how much you’ll have to repay each month.
Can you take multiple personal loans from different banks at the same time?
So, X bank says it will only lend you $12,000 since your monthly salary is $3,000. But you desperately need to raise $60,000 so you can buy yourself a helicopter. But hey, maybe if you applied for a loan at 5 different banks….
Sorry to burst your bubble, but there’s such a thing as the Total Debt Servicing Ratio (TDSR), and no, you can’t hide it from the banks. Basically, the MAS knows what all your liabilities are including loans and credit card debt.
And this information is free for banks to draw upon. This means that if you just out took a $12,000 loan at one bank and then skipped over to the bank next door, congratulating yourself on having beat the system, they will know what you did. And they will not be pleased.
Have you ever applied for a person loan? Share your experiences in the comments!