Banks and financial institutions want to grant you personal loans — the interest they charge on the loan is how they make money after all.

However, lenders also need to ensure that you can pay back the loan in a timely manner, and have to evaluate every loan application according to strict criteria.

This is why not every personal loan application will be granted, especially if there’s a mismatch in eligibility or missing documents.

Here are five things to watch out for when applying for a personal loan to increase your chances of getting the loan you need.

1. Check your eligibility

Personal loans come with certain basic requirements, and not meeting them is a common reason why loan applications are rejected.

One common eligibility requirement is a minimum income level, which varies across lenders and according to your citizenship status.

For banks, the minimum income required is $20,000 or $30,000 per annum for Singaporeans; for foreigners, this can go higher, up to $42,000 in some cases.

However, other lenders, such as online lending platforms and licensed moneylenders have lower income requirements.

This means that personal loans from such channels will be easier to get for those who do not meet the income requirements imposed by banks.

Besides income level, your citizenship status may also affect your chances of getting a personal loan. Some lenders do not offer loans to foreigners, which means only citizens or permanent residents should apply.

2. Ensure you’re not overly indebted

Borrowers in Singapore may only take on unsecured loans equal to 12 times of their monthly income. This includes credit card balances and other outstanding loans.

This means that if you attempt to apply for a personal loan that would cause your total unsecured debt to exceed 12 times your monthly income, your loan application may be rejected.

Or, you may only be granted a smaller loan amount — up to your personal unsecured loan limit — which may not be suitable for your needs.

Hence, it’s a good idea to check your remaining unsecured debt limit to ensure you can receive the loan amount you need.

You should also consider paying off your existing credit card balances or other loans so as to keep your debt level low and manageable.

3. Improve your credit rating

In judging your creditworthiness, banks refer to your credit rating.

Having a moderate or poor credit rating can increase the interest rate offered to you, or even cause your personal loan to be rejected altogether.

Thankfully, you can maintain a good credit rating by making sure you always meet your debt obligations.

This means paying your loan instalments or credit card bill on time, and not carrying a balance.

If you suspect your credit rating may be less than optimal, you can improve it by making timely payments for the next several months; this will show a pattern of fiscal responsibility that lenders look for.

4. Find a co-signer or guarantor

Some types of loans, such as renovation loans, allow two individuals to act as joint applicants.

As only one applicant needs to fulfil the loan’s eligibility requirements, this can be a viable way to get a personal loan even if you do not qualify on your own.

In other cases, a loan guarantor is mandatory.

This is most commonly required when taking an education loan, as the applicant is likely unable to meet the loan eligibility requirements on their own.

As co-signers and guarantors will also be sharing responsibility for the loan, it’s crucial to have an open conversation about the risks involved.

5. Limit your loan amount

You may be able to increase your chances of getting a personal loan by keeping your loan amount small.

This is because larger loans are inherently more risky to the lender, and thus more difficult to obtain.

However, smaller loans may be assessed to have a lower, more acceptable level of risk, and may be easier to grant.

As a general rule, only borrow what you need, and not more.

This will not only keep your personal loan amount low, and will also help prevent you from being overly burdened with debt.

You can also consider consolidating your debt to keep it manageable.

Best personal loans in Singapore

Lendela

Lendela is an online loan provider that helps borrowers find the best personal loans for their needs.

The platform tailors personal loan recommendations from various licensed moneylenders in Singapore, which often come with lower eligibility requirements compared to bank loans.

This makes Lendela a suitable alternative for those who do not qualify for a personal loan from a bank.

Note that the loans are provided by licensed moneylenders, and not Lendela itself.

As such, the interest charges will be higher than those charged on a bank loan.

HSBC personal loan

HSBC is the only bank that offers a loan tenure of up to seven years (other banks offer up to five years), which makes it the best option for those who prefer a long-term loan.

Having a longer loan tenure will result in lower monthly instalment amounts, which can make larger loans more easier to manage.

However, in return, the longer the loan tenure, the more total interest you’ll end up paying.

Nevertheless, HSBC personal loan remains a compelling option for those who require large loans and plan to pay back the loan over a tenure exceeding five years.

POSB/DBS personal loan

POSB/DBS personal loan offers two benefits.

One, it has the lowest annual income requirement among bank personal loans in Singapore; just $20,000, compared to the more common level of $30,000 per annum.

The minimum loan amount is also lower compared to its counterparts – $500 instead of the more customary $1,000.

Hence, this loan is one of the most viable options for those with lower incomes, or who only need to borrow a few hundred dollars.

Two, this loan has one of the fastest speeds of disbursement.

If you have a POSB/DBS credit card or line of credit account, you can enjoy immediate loan approval and receive your funds instantly, which is convenient and reassuring for those faced with a sudden and urgent need for cash.

This article was first published in ValueChampion.