Older Singaporeans may find it difficult to secure a personal loan, but following these tips can help.
It’s time to address a harsh truth: As you grow older, the chances of getting a successful loan diminishes.
For most of us, income diminishes at a certain age, and banks become reluctant to give credit. Don’t despair though – there are still some ways you can get around the age issue.
1. Provide Collateral for Your loan
The easiest way to get a loan, if you’re near or past retirement, is to use collateral. This is when you offer something as a guarantee, which the bank can possess if you fail to make repayment.
A collateral can be anything the bank accepts as being more valuable than the loan amount (i.e. a secured loan); this can be gold, your house, or even a portfolio of stocks. This is, in fact, one reason why some people like to keep a portion of their wealth in physical gold: they know it can be put up for a loan later, when they’re retired and don’t have a consistent source of income.
One other example of this is cash-out refinancing, also called a reverse mortgage, or second-mortgage. This is possible if you own a fully paid-up house. Under the Monetary Authority of Singapore (MAS) loan curbs, banks may loan you up to 50 per cent of the value of your private property*, even if you don’t meet income requirements like the Total Debt Servicing Ratio (TDSR).
One key advantage of using collateral is that, because the loan is secured, the bank will usually charge a low interest rate. For cash-out refinancing, for instance, the interest rate is currently around 1.6 per cent per annum; this is even lower than the rate at which your CPF accrues (2.5 per cent).
*Cash-out refinancing is not possible for HDB flats, only private properties
2. Use a Guarantor for Your Loan
A guarantor is someone who agrees to pay your loan, if you fail to do so. In most cases, a guarantor needs to be at least 21 years old, a Singaporean citizen, with an income level deemed appropriate by the bank (the bigger your loan amount, the higher the guarantor’s income has to be).
While most guarantors are close friends or relatives, remember you can also make private arrangements to find a guarantor. For example, some people have drafted contracts agreeing to give their stock portfolio, or their art collection, to a guarantor if they fail to pay their loan (these may not be accepted as collateral by a bank).
3. Shorten the Loan Tenure
Sometimes, shortening the loan tenure is all it takes to get your loan approved.
For example, when it comes to home loans, you can only borrow up to 60 per cent of the property value, if your age plus the loan tenure would exceed 65. But if you shorten the loan tenure, such that your (age + loan tenure) is less than 65, you could borrow up to 80 per cent of property value instead.
Shortening the loan tenure will result in higher monthly repayments, so make sure you factor this into the budget.
4. Team up With a Younger Co-borrower
One solution is to get a younger working age adult, such as an employed child, to be a co-borrower for the loan. Banks will usually average out the age between co-borrowers, so you might count as being “younger” than you really are.
This could, in turn, help your application go through.
As a Last Resort, Consider Non-banking Financial Institutions
There are financial institutions that are not banks, such as credit unions (also known as co-operatives). These organisations can be flexible, and may provide loans when banks won’t. If you have a good credit score, it may be worth approaching them instead.
However, beware of who you approach. Be sure that you are approaching a legit credit union, not a licensed moneylender set up to look like one. If you’re unsure, don’t proceed with the loan, no matter how appealing the terms may seem.
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By Ryan Ong
Ryan has been writing about finance for the last 10 years. He also has his fingers in a lot of other pies, having written for publications such as Men’s Health, Her World, Esquire, and Yahoo! Finance.