Bad credit and need a loan? You have options.

Where to look and how to apply for a loan with less-than-perfect credit.

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Although some lenders may require that you have a perfect credit score before you apply, many lenders will gladly accept applications from people without the best credit. While you may find yourself paying higher interest than other borrowers, if you have a steady source of income and the ability to repay your loan, there is likely a lender that can finance your next personal loan.

What is a bad credit personal loan?

Bad credit personal loans are meant for borrowers who have less than desirable credit scores. Because lenders see borrowers with lower credit scores as more likely to be delinquent on their loans by making late payments or defaulting, larger banks don’t usually lend to people below this threshold.

Fortunately, other lenders consider more than just a credit score when it comes to borrowing. These may look at your income, current debt and ability to repay before making a final decision on your application. It may mean you pay more than a borrower with good credit, but you’ll still have options when you find yourself in need of a loan.

What types of poor credit personal loans are there?

You may be able to get a secured or unsecured personal loan from a non-traditional lender, but usually, you’ll have to start rebuilding your credit before you can qualify. While you work on improving your score, consider one of these options when you need a loan.

  • Payday loans. Payday loans are short-term loans that you repay in two to four weeks. Lenders don’t require collateral to borrow but beware of the high EIRs.
  • Instalment loans. Instalment loans require you to make equal payments over a few months. While the EIR may be lower than payday loans, it is still much higher than other personal loans.
  • Auto loans. If you own a car or motorcycle, you may qualify for an auto title loan. These have lower EIRs but come with extra risk. If you fail to repay your loan, you may have your vehicle repossessed.
  • Cash advances. Cash advance loans for bad credit are essentially the same as payday loans. If you have a credit card, you may be able to withdraw a cash advance meet your short-term money needs.

How can I tell if I have bad credit?

Most Singaporeans don’t know exactly what their credit score is, but you don’t have to be one of them. You’re entitled to a free copy of your credit report from Credit Bureau Singapore if you meet any of the pre-requisites listed.

Typically, people with bad credit have struggled paying off debt in the past or simply don’t have a long-enough credit history to get a good credit score. If you’ve missed payments, defaulted on previous loans or declared bankruptcy, it’s likely that you won’t have a good credit score.

Where can I find a loan if I have bad credit?

While you might not be able to walk into a major bank to get a poor credit loan, you still have several options to choose from.

Online lenders

You might be able to qualify for an online personal loan with bad credit if other aspects of your personal finances meet a lender’s eligibility criteria. Although you’ll be able to finish your application and receive your funds more quickly, your interest rates and fees may be slightly higher than what you’d get with a bank or credit union.

Be sure you meet your lender’s credit requirements before submitting an application. Try to look for lenders that allow you to prequalify without affecting your credit score so you don’t suffer a point drop just for applying.

Short-term lenders

Short-term loans include payday loans, instalment loans, auto loans and cash advances. These are meant to take the pressure off during an emergency and generally need to be repaid within a few weeks or months. You’ll typically receive higher interest rates than other lenders, and you may risk high fees if you’re unable to make your payment on time.

Credit unions

Credit unions often offer financing to borrowers of all credit types with much lower interest rates than you’d find at other institutions. Many even provide small short-term loans designed to improve your credit score before you apply for more financing.

Credit unions are typically a better option for those who aren’t in a rush: you’ll have to become a member, and it can take a few weeks to complete the application and receive your loan.

How to apply for a personal loan with bad credit

While it depends on the type of loan you’re looking to borrow, you’ll follow about the same process with each lender and need to supply much of the same information.

First, find a lender that accepts poor credit borrowers. These lenders may still look at your credit score, but they will also consider your income and ability to repay your loan when considering your application.

Depending on your lender, you may be able to complete an application either online or in-store. If you apply in-store, your lender may be able to give you your loan funds that same day. If you apply online, it may take a day or two for your funds to be deposited into your bank account.

You’ll also need to give your lender a bit of basic information about yourself, including

  • Your contact information, current address and employer
  • Your NRIC and date of birth
  • Your salary slips, tax notice and bank statements

5 benefits of bad credit personal loans

  • No collateral required. Loans for bad credit are typically unsecured, so you don’t have to provide collateral to qualify.
  • Quick turnaround. Many personal loans only take a few minutes to apply for, and you could receive a decision the same day.
  • Your rates don’t change. Personal loans usually have fixed interest rates, so you don’t have to worry about your repayments changing over time.
  • Very few restrictions. You can use a personal loan for just about anything, including debt consolidation and bill payments. As long as it’s legal and approved by your lender, you won’t be limited to where you spend your loan.
  • No early settlement penalties. Some lenders let you repay your loan ahead of time without charging any additional fees, reducing how much you end up paying in interest.

What to avoid when borrowing with bad credit

  • Not budgeting out repayments. When you apply, make sure you have a budget in place. If you make a late payment or default on your loan, you could face lowering your credit score further.
  • Applying for multiple loans at once. Prospective lenders don’t view this favourably and it could impact your credit score negatively. Instead, try prequalifying with a few lenders to get an idea of what rates you can qualify for.
  • Skimming the rates and fees. Many loans for poor credit can be costly, so being aware of the full cost will help you plan for your payments.

How to improve your credit score

While improving your credit score can be a slow process, it will help you find better financing and more favourable rates down the road. You can start working on your score by taking advantage of some of these tips:

  • Order a copy of your credit report. To get the most accurate picture of your current financial health, request for your credit report from Credit Bureau Singapore (CBS). Take a look at your personal information, employment data, open accounts and balances and any other financial details listed and make sure that all of the information is accurate. If you see any discrepancies, report them to CBS and the providers that marked them.
  • Pay down your credit card accounts. One of the five variables that determines your credit score is your credit utilisation ratio, which is calculated by dividing your balance on existing credit cards by your available credit limits. Most lenders want to see a utilisation ratio of 30% or less. This means that if you have a credit card with a S$10,000 limit, you only want to keep a balance of S$3,000 or less.
  • Don’t take out new loans. Every time you apply for a credit card or personal loan, the lender does a hard credit check, which knocks your credit score down by a few points. To avoid further damage to your credit report, work on paying your outstanding debts instead of borrowing more.
  • Don’t close accounts just because you’re not using them. One of the five variables that determines your credit score is your credit history. Lenders want to see a long history of credit in your report, so closing that bank account or credit card could do more harm than good.

Bottom line

Bad credit isn’t the end of the line when it comes to taking out a personal loan. There are multiple lenders and loan options available to you no matter your score, but be careful. You may face high interest and multiple fees when you borrow, making your loan difficult to afford.

As with every big financial decision, compare your loan options before signing a loan contract.

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