Can You Get A Personal Loan With Bad Credit
If you have had money troubles in the past and it shows on your credit profile – can you still take out a personal loan? The answer to this question is a solid, maybe. But before we get into the nitty gritty, it’s important to understand what is meant by ‘bad credit’.
First off, credit (reports) is neither good nor bad. It all depends on how the lending bank will interpret the information they see.
Of course, many lending banks might take items like late payments, loan defaults or more than three highly utilised credit cards as a sign of poor money management. And this might then lead them to deem you as having ‘bad credit’.
But still, banks have different ways of evaluating one’s credit profile. Thus, even if you have been rejected at one bank, it does not mean that all banks will send you packing. You might be approved for a loan albeit at higher rates. So in this sense, bad credit is subjective.
If you are still in the dark about the concept of personal credit ratings and reports, do read our ultimate guide to credit scores in Malaysia.
So…I can get a loan with bad credit?
Yes, you might have a chance of securing a loan, even with ‘bad credit’. But this depends on if you can convince a lending bank that you can promptly repay the loan.
You might be able to do this by showing a strong income stream, engaging permanent employment with a major corporation and perhaps even producing a form of collateral (e.g. property you own), a co-signer or guarantor.
Still, even with a guarantor, you aren’t guaranteed a personal loan; the decision ultimately lies with the bank.
How do I up my chances for a personal loan?
Here’s what you can do to improve your chances of successfully getting the financing you need:
1. Get a copy of your credit report
Before you apply for a loan, it’s a good idea to check out your credit report first. Often times, applicants aren’t aware of their scores, good or bad. Now once you find out that your credit is not quite so shiny, you can take the necessary steps to improve it before you apply for a loan. You can get your credit report from the Credit Bureau of Malaysia via their Customer Service Centre, BNM LINK, Head Office or Bank Negara Malaysia Regional Offices/Branch.
2. Dispute discrepancies
Sometimes, things appear on your credit report that you do not agree with. For instance, a lender may have reported that you are not making timely payments when in fact; you had paid up what you owed! Mistakes like these do happen and it’s one of the reasons why you should really take a look at your credit report periodically.
Bear in mind that it’s not just bank borrowings that colour your credit report, your CTOS file also shows if any legal action has been brought against you. This could even include unpaid utility bills where your cable or internet provider files a suit to collect dues owed by you.
If you want to dispute a claim made against you, do request a data review.
3. Clear all arrears
If you are late with credit card payments, car loan instalment or others – do pay it off ASAP. Remember that your credit score is one major way to indicate your abilities as a good (or not-so-good) paymaster. And it’s hard to get a loan when you are showing that you have trouble covering your dues as it is.
4. Wait it out
When you do pay off all you dues and balances, it will take approximately 12 months before it is cleared from your record. So sometimes, your only option is to play the waiting game. However, in the meantime, if you are strapped for cash or in need of emergency funds, you might want to try your luck with a credit card instead. It’s a much better option than loan a shark, don’t you think.
Do try our credit card comparison tool to discover the best offers in Malaysia!
5. Build good credit
This option may or may not be doable for everyone due to the time factor. But if time is on your side, working to improve your credit is one of the best things you can do! This is because with good credit comes higher approvals and lower interest rates.
Improving your credit profile involves paying all your bills on time, keeping your credit utilization under 20% to 30% (the lower the better) on your credit cards, cultivating strong savings and ensuring that none of your accounts are dormant, among others.
6. Apply for a smaller loan amount
Although, you may want a large loan, the bank might be more comfortable to loan you a smaller sum. Now if you successfully repay this lighter loan, you’ll be improving your credit profile and your chances, the next time you apply.
7. Support your loan application
Even though personal loans are mostly unsecured, when you have poor credit, you may need to present a type of guarantee to the bank to help your application along. It may not always work but it is certainly worth a try. As mentioned above, a guarantor, consignor or collateral is one way to go, but you can also pledge financial assets too.
8. Apply for the right type of loan
Some banks offer special personal loans to those with less-than-perfect credit scores or lower incomes. Since these types of loan cater to your credit troubles, you may be in a better position to secure the loan.
9. Apply to different banks
Don’t just apply to one bank; try putting in an application with two or three. As noted, each bank will use individual metrics for deciding on whether or not you are creditworthy. If you are in a “long-term relationship” with a particular bank, you may have a better chance of getting approved with them. Now if you do get approval from all three, use it to negotiate lower rates.
However, if your applications are denied everywhere, it’s time to seriously look into your finances. We don’t mean to scare you, but it could be a red flag that you aren’t managing your money well enough. Start saving more, spend less and find ways to grow your money, we know you can do it!
If you are in need of a personal loan with flexible repayments and low interests, these personal loans might be just what you are looking for: Alliance Bank CashVantage Personal Financing-i, MBSB Personal Financing Private-i and Hong Leong Personal Financing-i. Need more options? Get a head start on your search by trying GoBear Malaysia's loan comparison tool!