How to Get Prequalified for Home, Car & Other Personal Loans

Prequalification is your first step in exploring a myriad of loan options. In Singapore, this is most applicable for home and car loans. Getting prequalified gives you an idea of the loan amounts and terms you may be eligible for based on an initial review of your credit by the lender. Because it’s not a loan commitment (further checks will follow after you decide to go through with the loan), prequalifying won't impact your credit score. 

Since many banks, credit unions, and online lenders offer this, you can easily compare potential offers from several sources. Here’s what you need to know about pre-qualifying for a loan, along with tips to boost your approval odds.

>> MORE: Your ultimate guide to personal loan applications in Singapore

Let’s take a mortgage (or home loan) as an example. Prequalification is often the very first step to take towards homeownership. While it’s an optional step, prequalification will give you a helpful idea of the loan amount you are likely to qualify for before going ahead to apply for In-Principal Approval (IPA). 

To get prequalified, all you need to do is provide key information such as your income, debt obligations, type of property you are looking at and desired loan tenure. Prequalification makes use of MAS regulations and the calculation methods employed by banks. The result will give you a good reference point when applying for your IPA, which requires submitting the same documentation to your chosen lender. Unlike prequalification, which has no expiration date, your IPA is valid for 30 days from the date of issue.

Continuing with the mortgage example, let’s take a look at the steps to follow when seeking loan approval in Singapore

1. Check your credit

Knowing your credit score is essential because it helps lenders assess how likely you are to repay any loan you take out. Before you start the application process, it's wise to check your credit report so you understand your position and can work on improving your score if necessary. You can obtain a free credit score check from Credit Bureau Singapore (CBS).

>> MORE: What factors affect your credit score in Singapore?

2. Choose your lender

In Singapore, the biggest decision you will need to make as a prospective homeowner is whether to get a mortgage from HDB or one of the many local financial institutions. To make the best decision for your needs, you will want to take a look at the mortgage options offered by various banks such as DBS, UOB and OCBC, and weigh up their terms and interest rates.

Source:

• Debt consolidation (https://www.singsaver.com.sg/personal-loan/comparison/best-debt-consolidation-plans)
• Credit lines (https://www.singsaver.com.sg/personal-loan/credit-line)
• Balance transfers (https://www.singsaver.com.sg/personal-loan/balance-transfer)
• Education loans (https://www.singsaver.com.sg/personal-loan/education-loan)
• Renovation loans (https://www.singsaver.com.sg/personal-loan/comparison/best-renovation-loan)
• Car loans (https://www.singsaver.com.sg/personal-loan/car-loan)
• Home loans (https://www.singsaver.com.sg/page/best-home-loan-rates)

3. Get your documents ready

Once you have decided on a lender, make sure you have all the necessary documents ready for application. These usually include:

• ID (NRIC or passport)

• Payslips for the past 3 months

• CPF contribution history for the past 12 months

• IRAS Notice of Assessment for the last year or two

• If applicable, documentation of your existing loan obligations

>> MORE: The difference between a soft and hard credit check

4. Submit your In-Principle Approval (IPA) application

After selecting your lender and compiling all the required paperwork, the next step involves submitting your IPA application. This process can frequently be completed online via your chosen lender’s platform. 

Some banks may provide an initial pre-qualification assessment before you proceed with the comprehensive IPA application. This intermediate step can give you a preliminary idea of the loan amount you might be eligible for.

5. Await completion of your bank’s internal assessment 

Once the lender has received your application, it’s up to them to determine your loan eligibility and decide how much you qualify for. If you are purchasing a HDB flat, this will involve an assessment of your Mortgage Servicing Ratio (MSR). 

At this stage, the lender will also look into factors such as your credit score, income source(s), debt-to-income ratio, and more. If there are any problems with your documents, here is when you can expect follow-up questions to be asked.

>> MORE: Why did my credit score go down?

6. Receive your offer letter

If your application is successful, you can expect to receive a Letter of Offer (LO) once the lender is done reviewing your application. This outlines the loan amount, tenure, interest rates and repayment plan you are eligible for. Keep in mind that the validity of a LO is 30 days from the date it is issued.

>> MORE: How to calculate your debt-to-income ratio

By now, you would have heard of both the terms ‘prequalification’ and ‘in-principle approval’ (IPA) spoken in relation to loans. Although the two share some similarities, they are fundamentally different. 

To recap, prequalification helps you to get an initial understanding of whether you meet the lender’s basic requirements for a loan. On the other hand, an IPA involves a more thorough review of your financial information and usually includes a hard credit check. This step should only be taken when you are somewhat serious about going ahead with a particular loan.

>> MORE: The difference between in-principle approval and actual approval

When your loan application is turned down, the most crucial step is to figure out the reasons behind the rejection. Financial institutions are obligated to explain their decision. Common factors leading to denial include a poor credit score, a high debt-to-income ratio, or an inconsistent employment record. Pinpointing the specific reasons for the rejection allows you to focus on rectifying those issues before submitting another application.

A low credit score often points to a history of late payments or using a large portion of your available credit. A high debt-to-income ratio indicates that a substantial portion of your current income is already committed to paying off existing debts, while an unstable employment history can raise concerns about your ability to repay any loan you take out, which increases the lender's risk.

Understanding why your application was unsuccessful can guide you in identifying areas to improve your credit score quickly, ultimately increasing your chances of being approved for a loan in the future.

>> MORE: How to build credit score in Singapore

Below are some ways you can enhance your credit profile and boost the chances of getting preapproved:

• Understand how the CBS credit system works: Your CBS credit score will fall somewhere between 1,000 and 2,000. The higher the score, the better your credit profile. This score is influenced by factors that include your credit history, payment utilisation and recent credit applications, amongst others.

• Reduce debt and manage credit utilisation: There’s no way around it – improving your credit score will require you to reduce your debt on top of getting your credit utilisation ratio down.

• Consider a secured loan: Secured loans are tied to an asset such as your home or car. The good news is that it’s generally easier to get approved for secured loans, but if you default on payments, you are at risk of losing the collateral tied to it.

>> MORE: Getting a personal loan with bad credit in Singapore

Do you have a bad credit score? While it may be harder for you to get loan approval, it’s not impossible. Some options you can consider include loans specifically designed for bad credit, (for reference, a bad credit score in Singapore is one that falls below 1,723 in the CBS system). You may also wish to explore offerings by licensed moneylenders and credit unions as they often have more flexible eligibility criteria.

Types of bad credit loans in Singapore

Here are some bad credit loans to consider taking out in Singapore:

• Secured loans: Do you have an asset you can use as collateral to obtain a higher loan amount or lower interest rate? As the presence of a collateral reduces the risk to the lender, this makes it more likely for them to approve your loan, even with bad credit. 

• Unsecured personal loans: Unfortunately, bad credit makes it unlikely for you to get the most favourable loan terms. If you are willing to settle for a lower loan amount and higher interest rate, you can consider an unsecured personal loan.

• Payday loans: As its name implies, a payday loan is meant to be repaid when you receive your next paycheck. While offering quick access to cash, the trade-off is the high interest rate. It’s advisable to see payday loans as a last resort, only to be taken out if you are confident of your ability to repay it timely.