If you are considering a payday loan from a moneylender you should read the “Notes for Borrowers” (PDF) from the Ministry of Law Singapore.
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Small Personal Loans
The pros and cons of small personal loans.
No two financial situations are the same and as a result there are loans available in all sizes to meet all credit needs. Here’s a guide to what’s what when it comes to small personal loans.
What is a small personal loan?
A small personal loan is a form of credit that typically ranges between S$100 and S$2,000. These loans differ from regular personal loans in that they usually have shorter loan terms and have more flexible lending criteria. They are offered by non-traditional lenders. It’s important to note that most personal loans from banks have a minimum borrowing amount that’s typically higher than what’s offered by small personal loan providers.
Small loan options
There are a few different types of small loans to choose from, all of which can meet different needs.
- Payday loans. These are small, short-term loans that you can use to cover expenses that come up before payday. These loans may be an option for people who have negative listings on their credit file as the eligibility requirements tend to focus on income and the ability to pay back the loan rather than on your credit history.
- Overdraft facilities. An overdraft gives the option of withdrawing more money than what’s available in your account. The amount is generally quite small, usually, between S$100 and S$1,000 and users can overdraw up to a predetermined amount with set fees and rates.
- Lines of credit. A line of credit is similar to an overdraft facility, but the credit line isn’t attached to your transaction account and you may be able to borrow more money. The user can withdraw up to a set limit at a set rate and you will only be charged the rate on the amount withdrawn.
- Cash advance. A cash advance involves withdrawing money from a credit card. This type of credit starts accruing interest straight away, usually in excess of 20% p.a.
- Good credit small loans. If you have good credit, you can still get a small loan. Compare the options below.
How can you compare small personal loans?
Small personal loans work in much the same way as other types of personal loans in that you are charged certain fees and rates in order to borrow money from a lender. Small personal loans do have a few key features, which are outlined below, that you can use in comparison:
- What are the fees you’ll be paying?
Lenders will charge a range of fees for lending money. Check for upfront fees, such as establishment fees, and ongoing fees, such as annual or monthly fees. Other fees, such as those charged for early repayment, may also apply.
- What loan terms are on offer?
Traditional personal loans are lent for loan terms as long as seven years, whereas small personal loans are usually lent for terms of between 16 days and 1 or 2 years. Check what terms are on offer before committing.
- How much can you borrow?
A small personal loan can range from loan amounts as little as S$100 to as much as S$2,000. Lenders will differ on how much you can borrow, so ensure you will be able to borrow the amount you need before settling on a lender.
- How can you apply?
As these loans are smaller and for shorter terms, most lenders operate online and provide quick loan applications. Some lenders are able to offer instant approval and can have the small loan amount transferred to you within 24 hours. When applying, the applicant will need to provide personal and financial details.
- How much will your repayments be?
Depending on the type of loan you choose, the lender may offer different repayment options. Some lenders may arrange your repayments in line with your income frequency and amount. Other lenders may offer other repayment features such as additional repayments or redraw facilities.
Things to avoid
When applying for a small personal loan, it’s vital to calculate the fees and rates to determine repayments and make sure it’s possible that it can be done. Also it’s important to consider just how critical taking out a loan like this is. If it’s not for an urgent expense, it may be worth trying to save the amount rather than taking out a small loan.
- Getting into too much debt
When considering whether to apply for a small loan, it’s important to assess your financial situation first and ask whether the loan is necessary. For example if the small loan is to pay bills or rent – check with your utility provider or landlord first to see if you can arrange more time to make a payment or set up a payment plan instead.
- Making too many applications at once
Remember, each application made for finance will be listed on credit files. Too many listings can look bad and show a profile of risk. If you are seeking a loan, don’t apply with every company you find as it may affect your credit score in the future which can impact on your ability to secure a loan.
Pros and cons of small loans
- Quick access to funds. Some short-term loan brands offer 60-minute turnarounds (of course, conditions do apply)
- Borrow only what’s needed. Applicants can request small amounts of cash, rather than having to borrow large sums of money and then pay it back, borrowing under S$1,000 may be more financially feasible.
- Set repayment periods. Generally, small loan repayment periods are short and will be set to match the applicants next payday.
- Higher fees. Because small personal loans are offered over a shorter period of time, the fees and charges are often higher. This is to protect the lender in the event of default or late payment.
- Limited range of lenders. Depending on the applicant’s credit history and income, there may be a limited selection of credit options. It’s always important to compare the options before applying.