It’s a week until payday and your bank account is running dry. The cash in your wallet is just about sufficient to keep you going until then. However, you suddenly remember you have to pay the fees for your child’s daycare centre in two days. What can you do to solve this urgent situation?
Personal loans and credit cards may be able to help, but only if you have sufficient time to make the application and receive your funds, or have a high enough credit limit. Another option – one that is gaining in popularity – is to take out a payday loan. This can make up for the shortfall, but there are important caveats to note.
Here’s what you need to know about payday loans in Singapore, how they work, and the pros and cons of using one.
A payday loan is a type of short-term unsecured loan that can help you cover urgent expenses that happen to be due a few days before your payday. They can be used for payments that are non-negotiable, such as insurance premiums, or time-sensitive, such as utilities or certain types of reservations.
Payday loans are so named because they are typically due by the next time your salary is paid. This means that payday loans in Singapore are designed for short-term purposes, rather than long-term plans.
In Singapore, payday loans are also sometimes known as “cash advance loans”. This is not to be confused with a credit card cash advance, in which the available credit limit on a credit card is withdrawn as cash.
When taking a payday loan, you may borrow up to your monthly salary, although the actual loan amount offered to you will depend on the lender’s evaluation criteria.
This restriction is in place as a safeguard – remember, a payday loan is due by your next paycheck, and borrowing too much will make it difficult to repay your loan.
If you require a larger loan, you may approach a licensed moneylender to discuss borrowing up to six times your monthly salary with a longer loan tenure.
Payday loans are quite readily accessible, as they are commonly offered by licensed moneylenders in Singapore.
When searching for payday loans in Singapore, it’s important to work with only licensed entities to ensure a safe and regulated borrowing experience. These licensed moneylenders adhere to the regulations set by the Ministry of Law, which aim to protect borrowers’ interests and prevent unethical lending practices.
Perhaps the biggest advantage of a payday loan is that it is a fuss-free way to quickly get the funds you need to pay for pressing expenses. You can submit a payday loan application online, and receive a preliminary offer in as little as 20 minutes.
Once your application is approved, all you have to do is pay a visit to the licensed moneylender’s office to review the terms and conditions of your payday loan and sign the loan contract. Your loan will be disbursed immediately to you, whether in cash or deposited into your bank account.
Another advantage of payday loans in Singapore is that they are easy to get, as they do not require a good credit score or history. You’ll be able to qualify for one as long as you have a stable income and meet the requirements mandated by the Ministry of Law.
While payday loans can offer a quick and convenient solution to tide you over until your salary comes in, they also come with some drawbacks.
Payday loans have high interest rates, which makes them unsuitable for frequent use. For illustration, a licensed moneylender may charge interest of up to 4% per month on your payday loan. In addition, they are also allowed to charge an admin fee of up to 10% of the amount borrowed.
And because payday loans have a short tenure of around a month, you’ll have to prioritise repaying your loan and possibly put another spending on hold until you do.
This is because if you are late in repaying your loan, you will be charged a late fee of up to S$60, and up to 4% late interest. In combination with the loan interest and admin fee, the cost of borrowing on a payday loan can become very high, especially if it is not carefully managed.
When considering a payday loan, it is crucial to be clear about your cost of borrowing. While interest of 4% per month, and an admin fee of 10% may be a small amount in dollar terms, you should still strive to get the lowest interest rate and admin fee you can find.
Just as importantly, you should be absolutely sure that you can repay the loan by the time it is due, to avoid having to pay late charges and late interest. This can set you further back in your financial plans.
To help manage your payday loan, only borrow the amount you need, and not more. Not only will a smaller loan be easier to repay, but also your cost of borrowing will also be lower in dollar terms.
Need an urgent loan but not sure if a payday loan is right for you? Synergy Credit offers a variety of short-term unsecured loans that suit a wide range of needs and purposes. Talk to our friendly consultants to find the best loan for you today.