Low-income Loans: What They Are and How to Get One in Singapore

When you're on a tight budget, unexpected expenses can feel overwhelming. Whether it's an urgent medical bill, essential home repairs or simply managing daily necessities when facing a financial setback, finding extra funds can be a struggle. Thankfully, in Singapore, even those with low income have options when it comes to securing a loan.

However, navigating the world of personal loans can be tricky, especially with varying eligibility criteria and interest rates. Therefore, it’s crucial to understand the different types of loans available, compare offers and choose the one that best suits your needs and financial situation. 

This includes considering options like bank loans, loans from licensed moneylenders and government assistance schemes, which each bring its own set of requirements and benefits.

>> More: Compare personal loans in Singapore

A low-income loan is a type of personal loan specifically designed for individuals or families whose annual income or salary falls below a certain threshold. This threshold can vary depending on factors like location, cost of living and household size. 

These loans cater to those who might not qualify for traditional personal loans due to their low income. They can be used to cover essential expenses such as medical bills, education costs or unexpected financial emergencies. Lenders offering low-income loans in Singapore include banks, licensed moneylenders and government aid programmes.  

Low-income loans differ from regular personal loans in a few key ways:

• Eligibility: They typically have more lenient eligibility criteria, making them accessible to those with lower incomes or less-than-perfect credit scores.  

• Loan amount: The loan amounts offered are usually smaller compared to regular personal loans, reflecting the borrower's lower income and repayment capacity.

• Interest rates: Interest rates for low-income loans may be slightly higher than those for regular loans, as lenders perceive a higher risk due to the borrower's financial situation.

It's important to compare offers from different lenders and carefully consider the terms and conditions, to find the best personal loan for you.

>> More: Should you borrow money from savings meant for your child

While many lenders in Singapore have minimum income requirements for a personal loan, there are some exceptions. Certain lenders prioritise a steady income and may approve bank or cash loans for low income earners, even if their annual income falls below the typical threshold.

These lenders are made up of the following:

>> More: Requirements for a personal loan

If you're having trouble getting a personal loan from a bank due to a low income, licensed moneylenders in Singapore can be an alternative. They often have more flexible eligibility criteria, but it's important to understand the differences:

• Income requirements: Moneylenders may accept borrowers with annual incomes below S$20,000, which is often the minimum threshold for banks. This makes them slightly more easy to access for those with low income.

• Loan caps: The maximum amount you can borrow from a moneylender is regulated by the Ministry of Law in Singapore. This is for ensuring responsible lending and preventing borrowers from taking on unmanageable debt.

• Repayment terms: Due to the higher interest rates, moneylenders may have stricter repayment terms and conditions, including higher late payment fees or penalties for early repayment.

>> More: What is a Debt-to-income ratio 

The Singapore government provides various financial assistance schemes and programmes to support low-income individuals and families facing financial hardship. 

These schemes typically have more relaxed eligibility criteria compared to traditional loans, and may offer lower interest rates or even grants. Some examples include:

• ComCare Long Term Assistance (LTA): Provides long-term support to those permanently unable to work and who have inadequate family support or savings.

• ComCare Short-to-Medium-Term Assistance (SMTA): Offers temporary financial aid to lower-income individuals or families facing short-term financial difficulties.

• Workfare Income Supplement (WIS) Scheme: Supplements the income and CPF savings of eligible low-wage workers.

>> More: How to get financial aide from the government

Even if your annual income is low, you can still increase your chances of getting approved for a personal loan. Here are a few strategies to consider:

• Understand the eligibility criteria: Lenders in Singapore — including banks and licensed moneylenders — have different eligibility requirements. Take the time to research online and compare these criteria to find lenders that are more likely to consider your application, even with a lower income. For example:

• Banks: Typically require a minimum annual income between S$20,000 and S$30,000.

• Licensed moneylenders: Often have more flexible income requirements, sometimes accepting borrowers with annual incomes below S$20,000.

• Government assistance schemes: Eligibility varies depending on the specific scheme and your individual circumstances.

• Build a strong credit history: A good credit score demonstrates responsible financial behaviour and can improve your chances of loan approval. Check your credit report for any errors, and focus on building a positive credit history by paying your bills on time and managing your debt responsibly.

• Maintain a healthy Debt-to-Income (DTI) ratio: Your Debt-to-income (DTI) ratio compares your monthly debt payments to your gross monthly income. Aim for a DTI below 35% to show lenders that you have enough disposable income to comfortably manage loan repayments.

• Explore secured loans or guarantor-backed loans: If you have assets to pledge as collateral or a guarantor with a strong financial background, consider secured or guarantor-backed loans. These options can increase your chances of getting approved, even with a lower income.

>> More: Personal loans with a co-signer

While a low income doesn't disqualify you from getting a personal loan, there are other crucial factors that you should consider before signing on the dotted line.

By evaluating these aspects, you can make an informed decision and choose a loan that truly benefits your financial well-being: 

• Interest rates and fees: Don't just focus on the advertised interest rate. Look deeper into the Effective Interest Rate (EIR), which reflects the true cost of borrowing by including fees and charges. Pay close attention to processing fees, late payment penalties and any prepayment fees that might apply. These costs can significantly impact the overall affordability of the loan.

• Loan repayment period: Consider the loan tenure offered, which can range from 1 to 7 years. A shorter tenure (1-3 years) means higher monthly payments but lower total interest paid over the life of the loan. A longer tenure (4-7 years) results in lower monthly payments, but you'll pay more interest overall. Choose a tenure that balances affordability with your long-term financial goals.

• Repayment ability: Ensure the monthly installments fit comfortably within your budget. Avoid over-borrowing, as this can lead to long-term financial strain and potential debt problems. Calculate your DTI to assess your repayment capacity and ensure you can manage the loan comfortably.

Ready to apply for a personal loan? Here's a step-by-step guide on how to navigate the process:

• Step 1: Compare loan offers

• Use SingSaver's personal loan comparison tool to easily compare offers from different lenders. Look at key factors like interest rates, loan amounts and repayment periods to find the best fit for your needs.

• Step 2: Check eligibility and gather documents

• Ensure you meet the lender's eligibility criteria, such as minimum income requirements and credit score, and if so, gather the necessary documents:

• NRIC/Passport for identification.

• Latest 3-6 months' payslips or CPF contribution statements for income verification.

• Income Tax Notice of Assessment (NOA) if you're self-employed.

• Utility bills or Tenancy Agreement for proof of residence. 

• Any additional documents where applicable.

• Step 3: Submit your application

• Bank loans: You can typically apply online through the bank's website or mobile app.

• Licensed moneylender loans: Moneylenders may either allow online applications, or you might need to apply in person at their office.

• Step 4: Approval and disbursement

• Approval time:

• Banks usually take between a few days to two weeks for approval.

• Licensed moneylenders may offer same-day approval.

• Disbursement method:

• Bank loans are typically disbursed via bank transfer.

• Moneylenders might disburse funds through bank transfer, cash or cheque.

If you're struggling to qualify for a personal loan due to a low income or poor credit history, there are alternative avenues you can explore to access financial assistance in Singapore. 

The following options may offer more flexible eligibility criteria, or provide support tailored to your specific circumstances: 

• Government financial assistance: As mentioned earlier, the Singapore government offers various financial aid programmes for low-income households, which can help to alleviate financial stress. 

>> Read more: Financial assistance for low income families

• Borrowing from family or friends: This can be an interest-free option, but it's crucial to formalise the agreement with clear repayment terms to avoid potential disputes.

• Salary advance or employer assistance: Some employers offer salary advance options or have employee assistance programmes to help staff facing financial difficulties.

• Credit unions or cooperative loans: Credit unions like NTUC Income offer personal loans with lower interest rates and more flexible terms to their members.

• Increasing income through gig work: Consider supplementing your income through gig platforms like Grab, Shopee Live or freelance work, to improve your financial situation and potentially qualify for a personal loan later.