It seems like most of the credit products are made for people with a yearly income of S$30,000 or more. Personal loans by banks especially list an annual income of S$30,000 or more as one of the key eligibility criteria. Those who have an income of less than S$30,000 often have to depend on personal loan options such as payday loans, loans from authorised and unauthorised moneylenders, etc. But what if we told you that persons with an income of S$20,000 or less could also get personal loans from banks?
Why is it difficult to get personal loan if your income is S$20,000 or less?
When you have a low income, the main reason why banks reject your personal loan application is that they think you will not be able to repay the loan. With a low repayment capacity, the bank will consider you a high-risk individual. The lower your income, the higher the chances that the bank would lose the loan amount it grants you.
Under what circumstances can you get a personal loan with a low income?
If you thought the banks are never going to consider your application if your annual income is less than S$20,000, you are wrong. Here are some conditions in which a bank is likely to approve your personal loan application:
- Your credit score is high: If your credit score is in the highest range – 1911 or and find more – it indicates your excellent credit behaviour. When the banks look at your credit report and see a high score, they are likely to give you a little leeway even if your annual income does not meet their eligibility parameters.
- You can show that you have a good repayment capacity: If you can convince the bank that despite your low income, you will be able to make repayments towards the loan on time and regularly, then banks are likely to consider your loan request. And how can you convince the bank? By showing low monthly expenses. If your personal expenditure for each month is low enough for you to be able to keep aside the monthly repayment instalment for the personal loan, then you may be able to persuade the bank to give you a loan.
- Long-term relationship with the bank: Some banks could waive the minimum income requirement if you have a long-standing relationship with them. For example, if you have a savings account with a bank, and have maintained fixed deposits or credit cards with the same bank, then you are likely to be viewed as a trustworthy customer.
Remember that despite all this, you may be charged higher interest rates than what the bank offers to individuals with a higher income, because the risk level is still high. It totally depends on the bank in question.
Types of personal loans you can take with a low income
If your application for a personal loan from a bank was rejected, don’t despair. Here are a few other options you can tap:
- Payday loans: Payday loans are usually short-term loans – of 1 to 3 months – that can be obtained from moneylenders and online marketplace. These loans come at a high interest rate. You also cannot borrow a large amount – usually you are likely to get only around twice your monthly income as a payday loan.
- Line of credit or instant cash loan: These loans are linked to your savings account or credit card. Many banks in Singapore have a cashline, a standby line of credit, which you can use when you want some urgent money. The amount you can borrow through a cashline is not large – it could be 2 to 4 times your monthly income – but it will help you when you really need it. It works like this: your bank gives you a line of credit based on your annual income and repayment capacity. For example, if your annual income is S$20,000, you may have a credit line of around S$6,000. You could borrow as much money as you need at a time as long as it is lower than the total credit exposure the bank allows you. As you repay the borrowed amount, the credit availability is restored and you can borrow again. The money can be borrowed through your debit card, cheque books or through funds transfer. The interest rate is quite affordable in this option. Some popular line of credit products available in Singapore are: Standard Chartered CashOne, OCBC ExtraCash Loan and EasiCredit, DBS Cashline, Bank of China MoneyPlus, Citibank Quick Cash Instalment Loan.
- Overdraft: This is an option available on savings and current accounts in banks. You can write cheques or withdraw cash from your account in case of emergency, even if your bank balance is low. You may be able to maintain an overdraft of around 2 to 4 times your monthly income. Since it is a revolving credit facility like a credit line, you can withdraw more again once each borrowing is repaid.
- Cash advance on credit cards: You can make cash withdrawals on your credit card if your need for money is urgent. However, it is highly unadvisable to borrow money from a credit card because the interest rate is inordinately high.
Debt management with low income
Ideally, if you have a low income, you shouldn’t be borrowing large amounts of money. Large loans not only make it difficult for you to make regular repayments, it also affects your credit score. Credit score is hit when you make repeated applications for a loan, as well as when you take a large loan and reduce your repayment capacity, and if you fail to make repayments on time or every month. If you already have a credit card, it becomes even more difficult to get a personal loan. So when your income is S$20,000 or less, we advise you to save as much as you can rather than taking loans. But of course, emergencies do not descend on you looking at your salary slip. So it is best to look for the most accessible credit product with the most lenient terms. This will help you keep the total debt low and allow you to make repayments without trouble.