How To Get a Loan When Facing Financial Hardship
Get the Best Personal Loans in Singapore
Applying for a personal loan when you're experiencing financial hardship can be a daunting task, yet with the right resources a loan can help you manage your finances and eventually set you up for success. During these uncertain times when many are facing both short and long-term financial problems, this guide will help you figure out which loans might be the best option should you need to borrow money.
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What To Consider Before Applying for a Loan
Taking out a personal loan can jump start you out of a difficult situation, but without a plan to repay the debt, a loan could leave you off worse than where you started. Thus, there are several things to consider to avoid defaulting on your loan.
First, you should think about the purpose of the loan. Is it to pay off a few bills, or do you need to sustain yourself and your family for a few months while you get back on your feet? What is the bare minimum you need to borrow, and how do interest rates factor into repayment? The following list showcases popular personal loans people can opt for during tough circumstances.
- Personal Installment Loan: Money is given up-front in a lump sum and paid back in monthly installments. This loan is helpful to finance large expenditures and emergency situations. Average interest rates range from 3.7% to 5.4.%, depending on which institutions you lend from.
- Credit Line: These loans allow you to withdraw a specified amount at any given time, making it a cheaper option for those with fluctuating finances. Many banks have promotional first-year interest rates, around 0-9%, which then hike up to an average of 16-21% per withdrawal. Its major advantage is flexibility, allowing you to securely borrow much needed cash without a long-term commitment. The downsides include annual fees and minimum monthly payments.
- Balance Transfer Loans: This short-term option to manage credit card debt helps those with pre-existing loans. Many balance transfer loans do not charge interest for anywhere between 3 to 12 months. However, they do charge a service fee of < 2% and an effective interest rate of 3-9%. These are best for those trying to tackle credit card debt in the short-term.
- Debt Consolidation Loan: These loans will provide you with a large sum of cash to help you quickly pay off debt. They do not offer the interest-free period, and tend to have 1 to 10 year commitments, depending on how long lenders assume it will take to repay it. Typical charges include a processing fee of around 0-2% and interest rates of 3-7%. This option is better for people requiring long-term debt management.
A second thing to consider when choosing a loan is its interest rate and duration. To put it in perspective, the average total interest cost of a S$10,000 personal loan for three years is around S$1,750, but due to different interest rates on the market, this cost can range anywhere from S$1,110 to S$2,681.
Average Estimated Interest Rates You Will Pay per Length of Loan in Years
| Tenure | Estimated Annual Flat Rate | Estimated Effective Interest Rate |
|---|---|---|
| 1 Year | 5.91% | 12.41% |
| 2 Years | 5.87% | 11.96% |
| 3 Years | 5.68% | 11.46% |
| 4 Years | 6.07% | 11.71% |
| 5 Years | 6.10% | 11.63% |
For people who are going through financial trouble, a large loan may seem like an attractive option. However, making payments could be too difficult. You should anticipate your future financial situation and think about how to repay the loan and the cost to borrow the money.
Getting a Loan If You Have Poor Credit
Obtaining a loan with lower-than-average credit is difficult, but not impossible. We've researched hundreds of personal loans and categorized the best options for people with poor credit. The overall best personal loan for those with bad credit is HSBC's Personal Loan since it offers the lowest interest rates (around 7%) with up to 7 years of borrowing. Other notable mentions include CitiBank's Quick Cash for a small, short-term loan and StandardChartered's CashOne for those with a low annual income.
A few non-bank licensed providers won't require a credit score check, but these should not be the go-to choice. In most cases, they come with high interest rates and arrears fees. For example, payday loans charge around 26.7% interest immediately for a two-week loan. Compare this with a personal loan interest rate of 3.6% to 5%, or a credit card loan charging 25% charged monthly. Basically, you'll be charged more than your entire paycheck for a cash advance—hardly a good idea if you're already cash-strapped.
Getting a Loan If You Have Low Annual Income
A typical minimum salary to get a loan at a bank is S$30,000, yet there are options if your salary is lower (say S$25,000 per year). Government aid or cash loans are also viable alternatives.
- Personal Bank Loans: While most banks have a minimum annual salary requirement of S$30,000, banks like Standard Chartered, DBS/OPSB, and OCBC will loan you money if you earn as little as S$20,000 per year. These loans work well for people who want to use the money for monthly payments on rent and bills or other long-term maintenance costs.
- Credit Lines: A credit line will allow you to continually (ie, monthly-basis) take out small amounts of a total sum at a time (which is typically about two-to-four times your monthly salary), paying back the amount you borrowed and the agreed upon interest rate, which is about 18-30%. This could be preferable for those who have fluctuating monthly expenses.
- Government Loans: During times of crises, like the COVID-19 pandemic, the Singaporean government introduces programs to assist citizens with low cash flow. However, these loans are quite restrictive on who is eligible. If your situation is caused by the pandemic, and you can prove that (ie, documentation of furlough lasting longer than three months), this could be a beneficial option.
- Cash Loans: For some, borrowing from family and friends is a safe option for immediate cash. Other lenders, like private, unlicensed lenders are much riskier as they are not regulated by the Registry of Moneylenders or comply with the Moneylenders Act. As such, they charge extremely high interest rates and may have dubious collection methods.
Government Grants for COVID-19 Relief
| Loan | Eligibility | Assistance Provided |
|---|---|---|
| COVID-19 Support Grant | Involuntarily unemployed for three months or longer | S$500 - S$800 per month for up to three months; job support and training |
| The Courage Fund | Lower annual household income before and during the COVID-19 pandemic | A lump sum of up to S$1,000 |
| Temporary Relief Fund | Lower to middle annual income households affected by COVID-19 | A lump sum of S$500 |
Getting a Loan With No Income
If you are currently in a situation where you don't have an income, your bank may accept an employment contract, bank statements, tenancy agreements (if you own and rent the property), alimony statements, or housing allowances. You could also consider asking a family member to be a cosigner for a loan.
However, non-banking loan options like pawn shop and payday loans should be carefully thought about prior to an agreement. Since not all pawnshops require proof of income, you risk your valuables as collateral. More so, the interest rates tend to be slightly higher than what banks offer. That said, they are less than what some other entities like payday loan lenders and licensed money lenders charge. If you can pay back the loan in 6 months or do not mind your valuable being auctioned off should you default, lending from a pawn shop could be worth considering. Payday loans, on the other hand, charge you a 25% interest rate every two weeks. These should be avoided as they will not take you out of hardship.
Debt Settlement and Paying Back Loans
If you are seeking to manage your existing debt, you can consider a credit counseling service. When you seek advice from a credit counseling service, the counselors might advise you to write a debt settlement appeal. These persuade the lender to lower the interest rates on repayment, change overdraft markers, or renegotiate the terms of the loan.
Alternatively, you can apply for a balance transfer or a debt consolidation loan. Balance transfers allow you to move outstanding loans into one account to repay them, and give you a 6 to 12 month grace period with zero interest. Debt consolidation plans also bundle up your high-interest loan payments, and will pay back your previous lenders through one provider. Paying each back on time will improve your credit rating.
What To Do If You Can’t Get a Bank Loan
There may be times when getting a loan is not possible but you still need emergency cash. In this case, there are alternative lending schemes that could help if you don’t qualify for a bank loan. Lendela , for example, provides upfront sums of money based on your credit rating and annual salary.
In short, getting a loan during financial hardship is not impossible, and can even help you build your credit score if you pay it back on time. However, it is important to consider which loan is right for you, the amount and duration you will borrow it for, and how it will affect your financial future. Still, a loan may not be your best option. If you find yourself struggling financially, you can utilise government subsidies to pay for things like health care, pick up a quick side job (if time allows), and ask your family for support.
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Anya is a Research Analyst for ValueChampion who focuses on loans and investments in Singapore. Previously, she assisted global consultancies, hedge funds and private equities with primary research at a high-growth fin-tech based in London. A graduate of the University of Oxford and King's College London, Anya is currently interested in applying quantitative research to help consumers make better financial decisions.