Personal Loans for Unemployed Persons in Singapore

One of the main advantages of steady employment is the ability to access unsecured credit facilities, such as credit cards and personal loans. The logic goes that with a regular income, you should have the ability to promptly pay up your bills or debt. This is why salaried workers may find it easier to secure personal loans, when compared to unemployed individuals. 

But what if you're in-between jobs and are in need of some extra funds to tide you over while you sort things out? Most personal loans offered by banks require a minimum annual salary of S$20,000-30,000. Without a regular source of income, you are likely to see your applications denied. That's understandable, since your employment status does play a role in the banks' risk assessment process. After all, how will you meet your monthly repayments with no income?

But all is not lost. Though loans for the unemployed may be tricky to secure, they are not impossible to obtain.

>> MORE: Here’s How to Build An Emergency Fund On A Tight Budget

Both retirees and those who are unemployed can choose between two methods to get a personal loan to secure additional funds. Depending on whether you have certain assets, you may prefer one method over the other.

Cash loan (with a guarantor)

The first way is to apply for a personal loan with the help of a guarantor. This essentially makes both you and the guarantor liable for repaying the loan.

Of course, this would only work if the guarantor you choose fulfils the eligibility requirements of the loan. They should also be in good credit standing so as to increase your chances of loan approval. 

You can apply for a personal loan with a guarantor at banks; this is a common occurrence with education loans, where one party has yet to reach the minimum eligibility age of 18 or 21.

Alternatively, you may also approach a licensed moneylender with a guarantor to take out a loan. Note that some moneylenders may be willing to offer you a loan without a guarantor, but this likely only applies to smaller loans on short tenures.

>> MORE: Personal Loans For Self-Employed Individuals

Cash-out refinancing (using your vehicle)

If you don’t have a suitable guarantor, you may try refinancing your car to get the cash you need. 

This is known as cash-out refinancing, in which you take a loan against the value of your vehicle. This loan is then repaid over a fixed duration. Some lenders may refer to this as car refinancing loans, where your Certificate of Entitlement (COE) and Preferential Additional Registration Fee (PARF) are encashed. 

Here’s how this works. Let’s say your car’s market value is S$40,000 and you have S$18,000 remaining on an existing car loan. With cash-out refinancing, you take a new loan of S$40,000, pay off the remaining S$18,000, and keep the remaining S$22,000 as cash. 

This will subject you to a brand new loan of S$40,000 to be repaid over time. However, if you can get a lower interest rate for this new loan — compared to, say, higher interest debt such as credit cards — you might find cash-out refinancing a viable option.

Refinancing isn’t something to be taken lightly, as you’ll be prolonging your financial liabilities, so be sure to go through your numbers carefully. If needed, talk it over with someone you trust who's good with money before taking the plunge.

Both retirees and those who are unemployed can choose between two methods to get a personal loan to secure additional funds. Depending on whether you have certain assets, you may prefer one method over the other.

Cash loan (with a guarantor)

The first way is to apply for a personal loan with the help of a guarantor. This essentially makes both you and the guarantor liable for repaying the loan.

Of course, this would only work if the guarantor you choose fulfils the eligibility requirements of the loan. They should also be in good credit standing so as to increase your chances of loan approval. 

You can apply for a personal loan with a guarantor at banks; this is a common occurrence with education loans, where one party has yet to reach the minimum eligibility age of 18 or 21.

Alternatively, you may also approach a licensed moneylender with a guarantor to take out a loan. Note that some moneylenders may be willing to offer you a loan without a guarantor, but this likely only applies to smaller loans on short tenures.

>> MORE: Personal Loans For Self-Employed Individuals

Cash-out refinancing (using your vehicle)

If you don’t have a suitable guarantor, you may try refinancing your car to get the cash you need. 

This is known as cash-out refinancing, in which you take a loan against the value of your vehicle. This loan is then repaid over a fixed duration. Some lenders may refer to this as car refinancing loans, where your Certificate of Entitlement (COE) and Preferential Additional Registration Fee (PARF) are encashed. 

Here’s how this works. Let’s say your car’s market value is S$40,000 and you have S$18,000 remaining on an existing car loan. With cash-out refinancing, you take a new loan of S$40,000, pay off the remaining S$18,000, and keep the remaining S$22,000 as cash. 

This will subject you to a brand new loan of S$40,000 to be repaid over time. However, if you can get a lower interest rate for this new loan — compared to, say, higher interest debt such as credit cards — you might find cash-out refinancing a viable option.

Refinancing isn’t something to be taken lightly, as you’ll be prolonging your financial liabilities, so be sure to go through your numbers carefully. If needed, talk it over with someone you trust who's good with money before taking the plunge.

• Lower your credit utilisation: A high utilisation ratio, especially one that’s above 30%, is viewed unfavourably by lenders and can lower one's credit score. But don't quit your credit card cold turkey. Instead, focus on paying your bills on time and cutting down on your monthly expenditure by freezing any subscriptions you don't need.

• Apply for one loan at a time: Excessive loan applications raise a red flag for lenders and negatively impact your credit score. This is because each application results in a hard inquiry on your credit report. Take out a loan if you must, but borrow as little as possible and pay off your loan as quickly as you can.

• Manage existing credit wisely: Do you have multiple credit cards? Consider terminating some of them to avoid accumulating more debt. Note that while this may raise your credit utilisation rate temporarily, it does not cancel out the good credit you have built by consistently repaying on time. Be sure to pay off any remaining missed or late payments before cancelling your card.

• Review your credit report: Reviewing your credit report every now and then keeps you in the loop when it comes to data uploaded on your credit file. It will also give you insights into what lenders see when they assess your financial responsibility, credit risk level and ability to repay debts.

• Higher interest rates: Personal loans from banks have interest rates that vary, but they are usually between 3-5% p.a. Although Ministry of Law regulations stipulate that maximum interest rates from licensed moneylenders be capped at 4% per month, this can translate to an annual interest rate of 48% p.a. As these rules don’t apply to unlicensed lenders, it’s possible that they may charge interest rates that are even higher.

• No legal recourse: As licensed moneylenders are under the purview of the Ministry of Law, unlawful acts can cost them to lose their license and impact their ability to operate their business. Unlicensed moneylenders face no such problem because they're already operating outside of the law. Loan contracts with unlicensed moneylenders are not legally binding, and those who borrow from them are not entitled to any sort of legal protection.

• Harassment tactics: Unlicensed moneylenders, especially loan sharks, regularly appear in the news for using harassment tactics that range from vandalism to public shaming. This can include splashing of paint or graffiti on one's main door, or even mailing funeral wreaths to one's doorstep. The Ministry of Law encourages anybody who experiences harassment, threat or violence during debt recovery to contact the police.

Go for instant approval loans

If you’ve been recently laid off, you may still have a small window to obtain a personal loan. The idea is to submit your application using your latest payslips/CPF statements as proof of income, and get your loan approved as quickly as possible.

Look out for loan packages with instant approval. Banks commonly offer such loans to existing customers with a pre-approved sum of credit; this also means there’s a cap on how much you can borrow. For example, DBS Personal Loans allow for maximum credit loans of up to 95% of your available credit limit. 

Provided this is sufficient for your needs, instant approval bank loans would be one of your best choices.

Licensed moneylenders also advertise instant loans, but note that such lenders charge higher interest rates than banks, and often have shorter loan tenures. This could result in high monthly repayment amounts, which has the chance to land you in a vicious cycle of debt. Ministry of Law regulations also mandate that you must personally visit the moneylender's office for personal identity verification purposes, which means that such loans are never really instant. 

>> MORE: Best Unsecured Personal Loans in Singapore 

Take small or short-term loans

You should only borrow what you need, and keep your loan as small as possible. This will help make your debt more manageable. 

Small loans are more likely to be approved quicker. This is because they are also less likely to trigger stringent, time-consuming checks or require additional levels of approval. 

By the same token, a shorter loan tenure can also positively impact your chances of loan approval. Some lenders may regard shorter-term loans as less risky, and may be more willing to grant them. 

Avoid applying for multiple loans at once

Each time you apply for a bank loan, you will trigger a credit check which is recorded in your credit profile. Having too many such events recorded over a short period indicates you are borrowing heavily, which makes you a bigger credit risk to lenders. This reduces the chances of getting your loan approved. 

You may think that applying for multiple loans may increase your chances of approval, but this will actually have the opposite effect. Instead, limit your personal loan applications, or space them out over time.

Show non-salary income

Unemployed individuals who have alternative sources of income may be able to increase their loan eligibility if they can provide documentation. This may include:

• Freelance invoices and contracts

• Consistent rental income documented in bank statements

• Statements or screenshots from digital payment platforms such as Fiverr or Upwork

Apply for a balance transfer

A balance transfer is akin to a short-term loan that comes with 0% interest for a specified period, typically 3, 6, or 12 months. As long as you repay the balance transfer within the interest-free period, you won’t have to pay any interest charges. 

That’s not to say balance transfers are completely free of charge. You’ll need to pay processing fees, which may range between 1.5% to 5.5%. For reference, processing fees for personal loans are usually between 1-2%. 

You’ll also need an existing credit card or credit line from which to initiate this balance transfer. The amount you can borrow depends on your existing credit limit.

Take a cash advance 

A cash advance lets you withdraw the remaining credit limit on your credit card in cash. You can then use the cash to pay for whatever you need first. You may have heard of cash advances through their other, much more reviled moniker: Payday loans. 

So how do cash advances work? Firstly, you’ll be hit with a cash advance fee (customarily S$15 or 8% of the amount withdrawn), which is pretty steep. Secondly, you only have until the next statement cycle to pay back your cash advance. Failing to do so will incur interest charges — this may be a higher rate than your credit card’s regular rate. For example, the KrisFlyer UOB card has a prevailing interest rate of 27.8% p.a. but UOB Cash Advances have an interest rate of 28.5% p.a. Critically, these interest rates are charged on a daily basis from the date you make your Cash Advance transaction, until full payment is complete.

All these reasons sum up why cash advances should only be used as a last resort. Even then, make sure you have a plan in place to make repayment as soon as possible. 

>> MORE: Best Payday Loans In Singapore