Lenders consider borrowers with a bad credit history such as delayed or missed payments as high risk. Whether it is a bad credit rating or unemployment, individuals who are ineligible for a personal loan approval from a bank can apply for high-risk loans from other lenders and financial institutions in Singapore. Secured and unsecured loans are the two types of high-risk loans. In the case of unsecured loans, you don’t have to pledge your assets as collateral.
What is a Personal Loan?
Personal loans are usually unsecured loans offered by banks to individuals aged 21 to 65 years old with a good credit score and a steady source of income. You can use personal loans for personal financial needs such as medical emergencies, wedding expenditures, holiday expenditures or credit card debt payments. Individuals should meet certain eligibility criteria to apply for a personal loan in banks such as:
Nationality: Singapore citizens, permanent residents, and expats with a Q, P1 or P2 employment pass can apply for a personal loan in Singapore.
Age: Applicants should be 21 to 65 years old.
Income: A minimum annual income of S$30,000 is expected for Singapore citizens and S$45,000 for foreigners.
Credit score: A bad credit score will result in the rejection of your personal loan application.
What is a high-risk personal loan?
Individuals with a bad credit history can apply for a high-risk personal loan from financial institutions and lenders other than banks. This type of loan is considered a high-risk loan because the lenders don’t get a guarantee that the borrower will repay the loan on time. Due to the high risks involved, the interest rate is higher than a conventional personal loan obtained from banks. To apply for a high-risk personal loan, you have to submit the following documents:
Identity proof: A copy of your IC (both sides), passport or employment pass.
Address proof: A copy of your utility bills such as electricity and telephone bills.
Income proof: Previous months’ salary slips, income tax forms, business registration certificates, etc.
When should you opt for a high-risk personal loan?
Individuals with a bad credit score or immediate financial need, can apply for a high-risk personal loan. The conditions under which one should choose a high-risk personal loan are:
Bad credit score: If you have a bad credit score, banks will not approve your personal loan application. Maintaining a good credit score can be difficult. In such a scenario, you can opt for a high-risk personal loan as a last resort to meet your financial needs.
No prevalent credit record: Individuals with no credit record or credit history will be given a CR credit rating. This rating is not favourable for a personal loan approval by the banks. To have a credit history, you need to pay loan EMIs or make credit card bill payments.
Bad credit rating: Those who have declared bankruptcy or defaulted on loan payments will be given HR credit rating. With such a rating, it is not possible to get a personal loan from a bank. Your only choice is to apply for a high-risk personal loan.
Financial emergency: Due to unforeseen circumstances such as the loss of job, medical emergency or temporary disability, you may be caught in a financial turmoil. In such cases, high-risk personal loans can come in handy to meet your unexpected financial needs.
Unemployment: Individuals without a stable employment and a steady source of income are not eligible for a personal loan approval. Unemployed persons can apply for a high-risk personal loan against their unemployment benefits provided by the government.
How to increase your chances of obtaining a high-risk personal loan?
There are certain steps that you can take to guarantee the approval of a high-risk personal loan such as:
Guarantor: You can have an individual with a steady income to sign as a guarantor for your personal loan approval.
Collateral: Putting your assets such as home and automobile as collateral will improve your chances of obtaining a high-risk loan.
Bank account: Standing instructions for loan repayment from a bank account in your name will persuade the lender to approve your loan application.
Income: Regardless of a bad credit score, having a steady source of income can convince the lender that you have the capacity to repay the loan.
Residence proof: Similar to that of your income proof, providing a proof of residence in Singapore will ensure you get a personal loan more easily than someone without one.
Benefits of high-risk loans
There some advantages to taking a high-risk personal loan such as:
- You can use the loan to meet your urgent financial needs.
- The loan processing-time is faster as the competition is less for high-risk loans.
- You can obtain a personal loan regardless of a bad credit score or no stable employment.
- You rarely have to put up your assets as collateral against the loan.
Pros and cons of high-risk personal loans
Like that of any financial product, high-risk loans also have certain advantages and disadvantages such as:
|Unsecured high-risk loans don’t pose a threat to your assets.
||High-risk loans have a higher interest rate than the conventional personal loans obtained from banks.
|Individuals with bad credit ratings can apply for high-risk loans.
||The cost of borrowing is higher for high-risk loans than the traditional personal loans.
|The processing time is faster for high-risk loans, which is what you need when you have an urgent financial need to meet.
||The loan amount is smaller as this type of loan is usually an unsecured high-risk loan. The loan amount ranges from S$1,000 to S$25,000 and the loan tenure is 1 to 10 years.
|This type of loan can be used to meet urgent financial needs.
||Partial payments or early payments may not be an option in the case of high-risk personal loans.
High-risk personal loans can serve as a last resort to meeting your urgent financial needs given the various risks involved in taking such a loan. There are alternatives to high-risk personal loans such as loan against credit, an overdraft on current account or a saving scheme.
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