Life can throw surprises your way, and sometimes you need cash quickly. Besides borrowing from friends or family, a personal loan is a viable option. You’ve used a personal loan calculator to estimate your needs, and now you’re ready to apply for a loan. Before committing, read on to understand the criteria lenders consider, from minimum income requirements to debt-to-income ratios and how employment and existing debts impact your application.
General Requirements
When it comes to personal loan eligibility, lenders typically consider several key factors to determine if you qualify:
- Minimum Income: The first hurdle you’ll need to clear is the minimum income requirement. Lenders and financial institutions usually set this threshold to ensure borrowers can manage repayments. This benchmark varies depending on the lenders and the loan amount that you need. While some lenders might be more lenient, others may require a higher minimum income, especially for more considerable loan sums.
- Credit Score Impact: Your credit score is another important element. Lenders use it to assess your risk of defaulting on debts. A high credit score not only boosts your eligibility but also grants you better interest rates. Borrowers with a solid credit history are seen as having lower risks and, thus, receive more favourable terms. Be aware that if you’ve never had credit facilities, your credit score might be low due to the lack of credit history, making lenders unsure of your reliability. If your credit score needs improvement, focus on responsible credit practices that can improve your prospects.
- Debt-to-Income Ratio (DTI): Lenders use the debt-to-income (DTI) ratio to evaluate your capacity to manage additional debt. A high DTI ratio indicates that a large portion of your income is already committed to debt repayment, which can negatively impact your eligibility. Simply put, the more debt you have, the less willing lenders are to extend further credit to you.
Loan Purpose
Another factor that can influence the lender’s decision is the purpose of your loan. Loans for education, medical emergencies, or debt consolidation are often viewed more favourably than those for luxury vacations or discretionary spending. The perceived necessity and responsible use of the loan can result in better terms and lower interest rates. Therefore, it’s essential to clearly state the reason for your loan when applying.
Loan Terms
Before taking on the facility, you must understand the terms and conditions of your loan. Aside from the headline interest rate, consider the repayment period and any applicable prepayment penalties. Shorter repayment periods usually offer lower interest rates but require higher monthly payments. On the other hand, longer terms can ease monthly cash flow but result in higher overall interest costs. Also, take note of prepayment penalties, as they can make early repayment costly and reduce any savings from settling your debt early.
Citizenship and Residency
Your citizenship and residency statuses are important but often overlooked criteria. While Singapore citizens and permanent residents typically have wider access to personal loans, foreigners with valid employment passes can also find suitable options. Each lender will have their own criterion and loan products tailored to different groups, so it’s wise to explore all available options to find the best fit for your circumstances.
Employment Type and Stability
Lenders will also scrutinise your employment type and history to assess your loan application and repayment ability. Having steady employment or consistent income works to your advantage, and you’re more likely to be approved for a personal loan with favourable terms. However, if your employment history is too short or filled with inconsistencies, it could hinder your application or lead to rejection.
Existing Debt Obligations
Lastly, lenders will examine your existing debts to assess your eligibility. High levels of outstanding debt, such as credit card balances or other loans, can hurt your application. Even if your DTI ratio is acceptable, substantial debt could mean higher interest rates or getting approved for a lower amount. It’s recommended that you decrease your existing debts before applying for a new loan to improve your chances of getting better terms.
Personal loans can provide much-needed financial relief during unexpected times, and now that you understand the factors affecting your eligibility, you can make informed borrowing decisions. If you’re looking for the best instant personal loan in Singapore, consider what we offer here at Shenton Credit. Benefit from our easy application process, fast approval times, transparent rates and flexible repayment options. We’re committed to providing the right financial solution tailored to your needs.
Contact us today or apply online for the support you deserve!
