If you are considering a payday loan from a moneylender you should read the “Notes for Borrowers” (PDF) from the Ministry of Law Singapore.
Alternatives to short-term loans
Consider these alternatives before applying for a payday loan:
- Payment plans. Talk to your electricity, phone or water provider to see if you can work out a payment plan or receive an extension on your due date if you’re behind on payments.
- Contact your creditors. Speak with creditors about extending the due date of your payment, or working out a new payment plan that works for both of you. Seek personal loans elsewhere. Consider a small personal loan from a bank or a credit union. You may qualify for a loan with much lower interest rates than those offered by payday loan companies.
- Pay with credit card. Consider paying with your credit card to cover your emergency bills or payments. This is not a long term solution, as you’ll need to pay off the balance as soon as possible, but it’s an alternative to a short term loan with high – and immediate – interest rates.
No matter how good you are at managing your finances, sometimes unexpected expenses crop up and you need money in a hurry. It could be a hefty vet bill, urgent car repairs or simply a purchase that you just have to make. Sometimes getting access to all the funds you need can seem beyond your financial grasp.
This is where payday loans come in. These small, short term loans are designed to cover you until payday. They give you the funds you need to make your purchases and then, when you next get paid, the theory is that you pay back the loan amount.
A number of Singapore lenders specialise in offering these types of loans, with many even giving financing to customers with bad credit histories. However, you also need to be wary of the loan terms, high interest rates and high fees these loans attract.
Remember it’s important to compare your options and other financial avenues before applying.
There are several risks when it comes to taking out a payday loan. In general, try to avoid taking out a payday loan if you aren’t certain that you will be able to pay it back. Downsides to payday loans include the following:
- High default fees. The biggest pitfall of taking out a payday loan is that if you are unable to repay it on time, you will likely be charged additional fees in addition to the interest you owe. This could end up significantly increasing the amount of money you must repay the lender and cause financial difficulties.
- The debt cycle. If you have difficulty making a repayment, it might be tempting to borrow more money to pay off your loan. This becomes a cycle of debt that can be very difficult to get out of.
- High interest rates. Payday loans typically have much higher annual interest rates than other types of loans.
- Direct debit risks. Many payday lenders require you to make repayments via direct debit on your next payday. Unlike other loan types, payday loans cannot typically be repaid in small instalments. If you need the money from your next pay cheque to pay for rent or other expenses, you could be left short.
- Credit rating impact. If you are unable to repay your loan on time, it could negatively affect your credit rating.
- Get money fast. Payday loans offer a quick and convenient way to access the funds you need.
- Easy application process. You can typically apply for these loans quickly and easily online, with fast approvals granted to many customers.
- Know the fees upfront. Lenders will inform you of the fees and interest rate attached to your loan upfront so you know exactly how much you will have to pay back.
- Quick access to funds. As a payday loan is something you take out when you need money fast, most lenders will give you fast access to your funds.
- Low minimum amount. You can borrow as little as $100 with a payday loan, meaning you can borrow as much as you may need to cover a particular bill.
- Accessible credit option. You can still apply for a payday loan even if you have a bad credit history or an outstanding loan. As long as you can afford to pay off the amount you apply for, you have a chance of being approved.
Lenders that offer “payday loans” or short term loans differ from institutions and other lenders in their application process and criteria. You can usually apply for these loans online and receive a response relatively quickly. For a lender to approve a short term loan, you have to meet eligibility criteria and provide documentation.
- Be 21 years of age or older
- Be a Singapore Citizen or Permanent Resident
- Earn an income that supports the repayment of the loan
- Have a job, with a steady income (or sufficient benefits)
- Be regularly paid, into your bank account (not in cash) either daily, weekly or monthly
- Not be self-employed (some lenders may make an exception)
- If you have bad credit, you need to prove your current financial situation is stable and reliable
It’s important to note, meeting the eligibility requirements does not guarantee approval of a loan.
- Identification card
- Singpass login
- Three months of payslips
- Your Internet banking details
- Utility bill, e.g. electricity bill, Starhub bill, phone bill, Internet provider
What other fees are associated with payday loans?
Along with establishment and monthly fees, if you are late or miss a repayment, lenders may charge other fees, which can include:
- Late payment fees. If you are behind with a payment and don’t notify your moneylender beforehand, they will likely charge you.
- Arrears fees. The account will attract a charge if you go into arrears.
- Collection fees. Any loans which are referred to collections or are defaulted on may incur additional fees.
- Collection letter sent out. If you receive a collection letter because you have failed to make a repayment and the lender cannot contact you, they may charge you a fee.
- Statement fee. If you request an account statement from the lender, you may be charged a fee.
- Convenient. These loans offer a convenient finance solution when you need fast access to money.
- Fast approval. Many lenders offer approval of applications within minutes and can then transfer the money to your account within an hour.
- Choice. This is an increasingly competitive market sector, which means consumers have an ever-growing range of lenders and loans to choose from.
- High interest and fees. These loans attract higher fees and interest rates than other loan products.
- Dodgy operators. Remember to keep an eye out for unscrupulous lenders.
- Debt cycle. If you take out a loan to pay off a previous loan, you could get stuck in a cycle of debt that is difficult to get out of.
There are two things you can do to ensure that you pay off your loan on time. The first is to make sure you’re fully aware of the fees, charges and interest rates attached to your loan. This will help you understand exactly how much your loan will cost you.
The second thing you will need to do is carefully manage your budget. If you fail to make your repayments, you can expect to be hit with hefty fees and charges which can quickly increase your debt. Planning ahead and staying in control of your finances is the best way to secure your financial future.
And as always you should read the “Notes for Borrowers
” (PDF) from the Ministry of Law Singapore if you are considering a payday loan.