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Personal loans vs payday loans

Find out the differences between personal loans and short-term loans, and how to compare them.

There is a wide range of loan options available to those who are in need of money. Each type of personal finance is suited to a different type of borrower and can be used for different purposes, and this includes personal loans and online cash loans. In this guide we break down the key differences between the two and outline their costs in order to help borrowers determine which will be the best loan for their needs and situation.

If you are considering a payday loan from a moneylender you should read the “Notes for Borrowers” (PDF) from the Ministry of Law Singapore.

What’s the difference between personal and payday loans?

There are several key differences between personal loans and short-term cash loans:

  • Loan amount. Customers can borrow up to S$5,000 from many cash lenders, and some offer loans as high as S$10,000. Personal loans come with much higher minimum and maximum loan amounts, with lenders rarely offering loans below S$5,000 but having maximum amounts as high as S$80,000-S$100,000.
  • Eligibility. Personal loans offered by banks and credit unions have strict eligibility criteria that often includes good credit and a regular income from employment or above a certain amount. Cash lenders that offer short-term loans are much more flexible and will consider those with bad credit or people who are unemployed.
  • Lenders. Personal loans are offered by banks, credit unions and standalone lenders. Cash loans tend to be offered by lenders specialising in that type of product.
  • Loan term. Cash loans come with much shorter terms, usually between 16 days and one year (depending on the loan amount). Personal loans, on the other hand, come with a minimum loan term of one year and a maximum of between five and seven years.

Short-term cash loans are regulated by Monetary Authority of Singapore (MAS) and lenders are restricted as to what fees and rates they can charge. For example, the maximum interest rate that moneylenders can charge is capped at 4% per month. This applies regardless of the borrower’s income and whether the loan is an unsecured or secured one. Personal loans do not have such restrictions as long as they are offered by an Authorised Deposit-taking Institution such as a bank or credit union.

Before taking out a loan of any type it’s important to read the full terms and conditions so that you are aware of all fees and charges, which can include hefty penalties for late or missed payments.

How can I decide which type is right for me?

While there are similarities between these two products, there are stark differences as well. Asking yourself the following questions will help you decide which type of loan is right for you:

  • How much do you need to borrow?

    Personal loans allow you to apply for a much larger loan amount, while cash lenders usually have maximum amounts of S$2,000 (although some lenders will provide loans of up to S$10,000).

  • When do you need the money?

    Cash lenders offer a quick turnaround for your loan and can have your approved funds in your bank account within the next business day. Some personal loan lenders offer same-day turnaround for existing customers but the usual waiting time is a few days to a few weeks.

  • How is your credit history?

    Online cash lenders have more flexible eligibility criteria than lenders offering standard personal loans. You may still be able to apply for a cash loan if you have bad credit or a low income. Personal loans come with more stringent eligibility criteria. The majority of personal loan lenders will require you to have good credit and will usually have a minimum income requirement to show you can repay the loan.

  • What can you afford to repay?

    Short-term cash loans come with much higher rates and fees, meaning higher repayments. Your loan will be repaid in a shorter period of time but you need to determine your ability to afford the repayments. Personal loans come with lower rates and fees, and while they are spread over a longer term, they may make for more manageable repayments.

And as always you should read the “Notes for Borrowers” (PDF) from the Ministry of Law Singapore if you are considering a payday loan.

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