By and large, personal loans require minimal eligibility and documentation criteria, and they don’t usually require a collateral or a written reason for the application. Some banks even encourage online applications of personal loans and offer instant approvals. However, it would be foolish to assume that a personal loan application can never get rejected.
The ABCs of personal loan rejections in Singapore
1. Poor credit history
This 4-digit number can make it or break it for you. Your credit score comprises a grade and a corresponding score ranging between 1,000 and 2,000. Credit Bureau Singapore assigns your credit score based on your credit repayment history. So the closer your score is to 2,000, the higher your chances are to get any credit line approved.
The credit score also exists to assess your risk of default. Every score has a minimum and maximum percentage of default referred to as the probability of default. The lower your percentage, the lower you are at risk of defaulting on a credit line.
Here’s how credit scores are assigned in Singapore:
|Grade||Credit Score||Probability of Default|
|AA||1911 to 2000||0% to 0.27%|
|BB||1844 to 1910||0.27% to 0.67%|
|CC||1825 to 1843||0.67% to 0.88%|
|DD||1813 to 1824||0.88% to 1.03%|
|EE||1782 to 1812||1.03% to 1.58%|
|FF||1755 to 1781||1.58% to 2.28%|
|GG||1724 to 1754||2.28% to 3.46%|
|HH||1000 to 1723||3.46% to 100%|
Can’t find your grade in this chart? Received a grade of “CX”? This means that you don’t have sufficient credit history to be assigned a credit score. CX represents an ungraded credit score. This can also be a reason for your personal loan rejection because if the bank can’t assess your risk behaviour, they can reject your application to secure their credit.
What you can do instead: If you have a poor credit score, aim to fix that first. Deal with one problem at a time. Start making repayments on time and work on reducing your total debt before applying for new credit. If you don’t have the time or don’t feel like this is a viable option for you right now, then apply for a secured loan instead, which has a better chance of approval.
And if you have an ungraded credit score, build credit first before reapplying for a personal loan. The easiest and fastest way to build your credit history is by applying for a credit card.
Making too many applications
You know how playing “hard to get” works, right? The same principle works better when applying for a personal loan as well. If you have made too many credit line enquiries in the recent past, then it can lead to your personal loan application being rejected and here’s why: every enquiry is recorded on your credit report and is an immediate red flag.
See, making too many enquiries with different banks makes you seem as someone in desperate need of money. It already shows the bank that you are not equipped to handle your finances right now and hence you need the credit. Making too many enquiries also lowers your credit score.
What you can do instead: Do your research well and instead of making multiple enquiries with all the banks you’re interested in, compare your options beforehand. After making your decision, apply with the bank you’re interested in instead of all of them. Like it is often said, “don’t shoot in the dark”.
Unstable employment history
How many times have you quit your job in the past year? If you’re still thinking about the answer right now, you just found out why your personal loan was rejected. Having a steady employment with regular paychecks is what most banks find desirable in their customers.
However, bear in mind that a steady employment does not refer only to salaried employees. Even self-employed persons who produce 2 years of Income Tax Notice of Assessment and meet the requirements can apply for a personal loan. This is because lenders need to trust that you have a steady income long enough to repay your personal loan.
What you can do instead: Check the employment and income eligibility criteria first. Make sure you meet it before reapplying for a personal loan. If you don’t meet the requirements, then you know what you need to work towards before applying again.
You have too many existing debts
If your monthly debt obligations are already too high, there is a good chance for your personal loan rejection. Although TDSR (Total Debt Servicing Ratio) is mainly taken into consideration for a home loan than for a personal loan, banks will not completely ignore your current debt obligations. If you currently have too much debt on open credit lines such as credit cards, other loans, etc. the bank may choose to reject your application.
What you can do instead: There’s only one thing you can do in this case – work towards clearing your existing debt by paying your bills on time, and then apply for a personal loan.
If you have applied for a Debt Consolidation Plan (DCP)
When you apply for a DCP with a participating financial institution, all your existing unsecured lines of credit will be closed and you will start making a single payment every month towards clearing your existing debt. You can only apply for a personal loan with a DCP financial institution once your Balance to Income (BTI) has been downsized to less than 4 times your monthly income. BTI is an aggregate of your interest-bearing outstanding balance divided by your monthly income.
Therefore, if you have applied for a personal loan while on a DCP, not having realised this condition put forth by the Association of Banks Singapore (ABS), this is the reason for your application rejection.
What you can do instead: You can apply for a personal loan with a non-DCP financial institution once your BTI has been downsized to less than 8 times your monthly income.
Before you re-apply for a personal loan, here are a few more pointers:
- 3 Aspects of Personal Loans You Need to Understand Before Getting One
- Beginner’s Guide to Taking a Personal Loan
Are you still curious about personal loans? Head over to our personal loan category right here.