How does a self-employed person obtain a loan in Singapore?

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Are you a self-employed individual? You are definitely enjoying a lot of benefits that come with it. Think of working in the comfort of your home! You do not work on a fixed schedule. Neither do you need to be worried about closed-door meetings? You can rest any time you feel exhausted and work anytime, including extreme hours. It is just a nice thing to be self-employed. Nevertheless, there some problems associated with self-employment. In fact, many people fail here due to a lack of self-discipline.  But there is yet a bigger challenge than this: obtaining a loan. It is not that you do not qualify for loans, but the thing is it proves challenging sometimes.

A self-employed has to convince a lender more than an employed person and this is what makes it difficult. For instance, he or she has to prove that they can make at least four times the amount of loan they are requesting, unlike employed individuals who can simply use their pays slip to apply. While this may be the situation in many countries, the problem in Singapore is high rates of interest on personal loans.

But why would this be the case? Remember, personal loans are not secured, implying the lender does not stand any chance of securing your personal asset in case you default. It is possible for Singaporean to obtain loans even if they only work for themselves. In fact, you can negotiate for favorable terms as well. Truth is said, a self-employed qualify for loans, though he or she has to maintain a steady cash inflow for a longer period of time. This is the only way of convincing a lender. If you are a self-employed individual, look at the following basics prior to application:

  • Take time to learn the terms of borrowing
  • Survey the market for better rates
  • Prepare the necessary documents.

If you do not repay, your credit score will be dented and this lowers your chances of obtaining credit cards or being approved for loans again. A study carried out in Singapore in November of 2017 indicated that the main reason why people apply for personal loans is to meet household expenses. As already outlined, it may be challenging, though possible, for self-employed Singaporeans to be approved for personal loans. The following tips will, however, help you obtain a personal loan if you are among the many self-employed Singaporeans:

  • Secure a line of credit before quitting employment. In case you have not spent at least two years in self-employment, it is obvious you cannot be approved for a personal loan. It is a requirement by lenders that you provide a Notice of Assessment for at least two years. That is why it is important that you get a line of credit prior to quitting work.

A line of credit always last for two years, and therefore this is a strategy that can be of great help if you plan your moves in advance. It can cushion for the two years before your notice of assessment can possibly help obtain a personal loan.  In addition, there are so many advantages associated with a good line of credit for people who are self-employed. For instance, they carry a lower interest rate, though it varies with the institutions. Besides, you will not incur withdrawal charges if you actually use them for cash.

  • Maintain a good credit score, for it matters a lot. Always apply for loans that you are able to repay in full within the required timeframe. It is quite challenging for a self-employed individual to be approved for a loan if his or her credit score is poor compared to an employed person. Inability to pay in time lessens your chances of getting a personal loan, or even makes it impossible.

Important to note, unlike in other countries, the interest rates in Singapore depends on the credit grade. This credit is computed by means of a computer program that keep track of how you use credit using a proprietary algorithm. According to this system, the best grade is AA, followed by B and C, which shows delinquency. The grade is the poorest and it is characterized by defaults. You can regularly check your credit performance at $6.  Use the following tips to promote your credit score.

  1. a) Borrow small amount of money and repay in full
  2. b) Always settle debts in time. You don’t have to be reminded before acting.
  3. c) Avoid the tendency of applying for multiple loans simultaneously. Otherwise, lenders may perceive you as an unstable person financially, as a result lessening your loan chances.
  • One-Month employment cannot help. For the bank to accept your CPF statement as proof of your income, you need to have been employed for at least three months. So can be validly perceived as an employee if you have worked for at least three months. Therefore, shifting from self-employment to a full-time job for a month and expect to be approved for a loan is futile.
  • Make your income as consistent as possible. Remember nearly all loans have a 30% cut in a case where the income is factored by banks. For this reason, a fickle income may be perceived as low.
  • Focus on tax notice of assessment rather than your CPF statements. If you are a self-employed person and needs a personal loan, lenders usually do not demand your CPF documents. Therefore, even in a situation where you have opted to offer voluntary CPF contributions, it may all be insignificant.

Conclusion

Back to the question raised at the beginning: How Does a Self-Employed Person Obtain a Loan in Singapore? Well, it is possible, yet not as easy as someone who is employed. A self-employed person may be required to prove to be making an income of at least four times the amount applied for. Following the tips discussed in the preceding section will make it easy to be approved for a loan if you are self-employed. Learn about specific types of loan you can qualify for at Bugis Credit and feel free to make an inquiry from them.