In Singapore, getting a personal loan is quite easy as it requires minimum documentation and eligibility. Also, you do not have to provide a written reason or collateral when you apply. There are several banks in Singapore that encourage people to apply online for personal loans and offer immediate approvals. Despite all this, there are instances when your personal loan application could be rejected.
Here are some of the most common reasons why your personal loan applications are getting rejected:
1. You are making too many enquiries and applications
Each time you apply for a credit card or a personal loan, the bank may make an inquiry for your credit report with the Credit Bureau Singapore. CBS records these as hard inquiries and adds it to your credit report. When you apply for several loans/cards at the same time, most financial institutions perceive you as someone who cannot handle his/her money properly and is always on the lookout for borrowed money.
This also lowers your credit score. To avoid this situation, instead of making too many applications for credit, you must do your research properly and compare your options in advance. After you have made your decision, apply only for the loan you are interested in.
2. You have poor credit history
Your 4-digit credit score has a huge bearing on whether your personal loan application is rejected or not. Your credit score comprises a score ranging between 1,000 and 2,000 and a grade. Credit Bureau Singapore allocates a credit score on the basis of your credit repayment history. The chances of your personal loan getting approved depend on how close your score is to 2,000.
Your credit score will also help banks make an assessment of your risk of default. Every score has a maximum and minimum percentage of default known as the probability of default. The percentage is directly proportional to the risk of your defaulting on a loan.
3. Your existing debts are high
Your personal loan application may get rejected if your prevailing debts are too high. Although the Total Debt Servicing Ratio is primarily considered for a home loan, banks may not ignore your current debts for personal loans either. If you presently have too many open credit lines like credit cards and loans, the bank where you are applying for a personal loan will consider you are overexposed to credit, and therefore a potential default risk.
The only way you can avoid such a situation is by working towards paying off your current debts and then applying for a personal loan.
4. You do not meet the minimum annual income criteria
Often, lenders have a minimum income requirement and if you have applied for a personal loan amount which is more than what you’re eligible for, the application is likely to get rejected. To avoid this situation, you must talk to your lender before filling the application form. Alternatively, you could look for non-banking financial institutions or payday loans where your annual income is not the biggest consideration.
5. Unstable history of employment
Most banks offer personal loans to people who have a stable history of employment. If you have a history of quitting jobs multiple times, your personal loan application is likely to be rejected. Most banks want a customer with a stable employment or business and a regular salary/income.
6. You do not fall under the right age bracket
In Singapore, your personal loan application is likely to get rejected if you are not under the right age bracket. With most money lenders in Singapore, the stipulated age bracket to qualify for a personal loan is 21-65 years. To avoid rejections on such grounds, you must check income and employment eligibility criteria before applying. If you find out that you are not meeting these criteria, avoid applying for such loans.
7. You have applied for a Debt Consolidation Plan
If you have applied for a DCP you can apply for a personal loan with another lender only if your Balance to Income has been reduced to less than four times your monthly income. If you apply for a personal loan while you are on a DCP and fail to fulfil this condition, your application will be rejected.
You can avoid such rejections by applying for a personal loan with another financial institution, after your Balance to Income has been reduced to less than eight times your monthly income.