Having a poor credit rating could prevent you from getting a personal loan from a bank. When that happens, you can try applying for a bad credit loan in Singapore to meet your immediate needs. As a bonus, proper management of your loan obligation and timely repayment of your debt can also improve your creditworthiness. Here’s everything you need to know about bad credit loans.
Yes, you can. But first, let’s understand what a bad credit loan is, and how it works.
A bad credit loan is a type of unsecured loan that is useful for meeting urgent financial needs or unexpected expenses. Like other types of unsecured loans, bad credit loans do not require collateral to be pledged.
The key difference is that bad credit loans are easier to get – even if you have a bad credit score. The loan quantum is also kept within limits to help ensure the borrower can repay the loan on time.
Because of this, bad credit loans in Singapore tend to have higher interest rates than other types of loans, such as personal loans. Hence, you must practice good financial discipline and pay off your loan on time.
Many licensed moneylenders in Singapore offer bad credit loans as part of their money lending services. This is because bad credit loans are likely to be sought after by their core target audience – borrowers who may be unable to qualify for bank loans.
Given that there are more than 150 licensed moneylenders with outlets all over the island, bad credit loans in Singapore are quite easily found. However, you should be careful to only borrow from a legal moneylender, to avoid falling victim to loanshark harassment and harm.
You may be worried that having a less-than-stellar credit score will hinder your chances of getting a bad credit loan. After all, credit scores are used as an indicator of the creditworthiness of a borrower.
Well, rest assured that licensed moneylenders who provide bad credit loans don’t think the same way.
When evaluating your bad credit loan application, licensed moneylenders mostly focus on your ability to pay back your loan. They place more emphasis on the stability of your employment and the level of your income, which determine your ability to repay your loan.
Having a poor credit score is of less concern, but you do need to prove that you are capable of holding down a stable job. To that end, you will be asked to submit your latest payslips (dating back at least three months) when applying for a bad credit loan.
While bad credit loans can provide you with a much-needed lifeline, they are not without their disadvantages.
For one, licensed moneylenders charge interest of between 1% to 4% per month, and bad credit loans may come with interest at the upper end of that range. This means that bad credit loans may be more costly than other types of loans.
Secondly, moneylenders may also impose a lower loan quantum on bad credit loans, as a way to offset the risk of default. This makes such loans unsuitable if you need a large sum of money.
For these reasons, bad credit loans may not be the best option for regular use. Instead, you should think of them as stepping stones that can help you improve your creditworthiness.
The Moneylenders Credit Bureau (MLCB) is the agency that maintains credit reports on individuals who borrow from licensed moneylenders in Singapore. This report is known as the Loan Information Report and is a different credit report than the one maintained by the Credit Bureau of Singapore – which contains information relating to bank loans.
When a borrower applies for a loan from a licensed moneylender, the moneylender will first check the Loan Information Report. The report contains your personal information, a summary of all your outstanding loans from licensed moneylenders, as well as your payment history.
Your payment history contains the details and status of your loan repayments. Note that each repayment is recorded, and any that are late will be flagged as such – including how many days late.
Missing your repayment due dates or not paying up at all is known as defaulting on your debt, and having defaults in your loan information report will lower your eligibility as a borrower.
Thankfully, repairing your creditworthiness is relatively simple, and you can do so using a bad credit loan by:
- Making your loan repayments on time and in full. This allows you to demonstrate financial discipline and that you can be a responsible borrower.
- Keeping your total borrowings and number of loans to a manageable sum. Make sure not to overborrow when applying for a bad credit loan.
Many people think of them as a means of last resort, but when used correctly, bad credit loans in Singapore can act as stepping stones to improving your circumstances.
By faithfully paying your loan repayments on time and clearing off your debt in full, you can slowly but surely rehabilitate your credit standing. After establishing a good track record of timely repayments, you may find it easier to secure a larger loan from licensed moneylenders.