Payday loans are unsecured, short-term loan type that attracts high-interest rates. This type of loan can be used to cover bills, rent, and other urgent expenses that cannot be off until the next salary. Payday loans are good sources of quick cash in case you are faced with financial emergencies. In Singapore, you can access a payday loan if you have a stable source of income and a bank account.
Unlike traditional bank loans which offer 2-3 times of your monthly salary, payday loans allow a maximum amount of half the monthly salary you get.
There are ranges of pros and cons that are associated with the payday loan. Some of which include:
The Pros Of Applying For A Payday Loan
Payday Loans may not be that different from the traditional bank loans you have access to. The main difference is payday loans are designed for a short period of lending i.e. under a month and then you repay back the loan. Payday loans are great when you repay them back before the agreed due date. They can also help get you through a passing cash problem.
- Simple Online And Fast Approval Processes
Money lenders have made it possible for individuals to apply and also have the loan approved all via the internet. This offers a customer a 24-hour type of customer service. This medium ensures quicker transfer of information and approval. Therefore you are able to attend to your urgent commitments within a short period of time upon application.
- Cash Is Made Available Fast
Payday loans offer you quick access to cash. It normally takes less than 24 hours to process and disburse the money to your account. Traditional bank loans, on the other hand, take a number of working days for you to receive the cash.
- No Collateral Required
Payday loans do not need you to have any form of security, what you present to the moneylender is 3 months current payslip and bank statements. Thus you do not need to put in any of your property as security.
- Licensed Moneylenders Offer This Loan Facility
Although you can access loans from unlicensed moneylenders, it is, however, advisable to deal with moneylenders that are certified. Licensed moneylenders follow set lending rules, unlike loan sharks who answer to no authority. Licensed moneylenders are issued with licenses by MAS.
- Less Paperwork
Credit checks and other paperwork are not needed for your loan to be approved. Traditional bank loans normally take long to approve your loan since they do extensive credit checks. This makes it possible for more Singaporeans to easily access loans even when they have a low credit score.
- Payday Loans Are Flexible
Knowing the tenure of a loan helps you plan better for repaying it. Payday loans are loans with short tenures, i.e. short-term loans. However, they are flexible in that you repay when your next paycheck arrives, and not before.
- You Can Use Your Loan For Anything
Typically, a payday loan doesn’t have any limitations on what you can use it for. For example, bridging loans are a specific type of loan used for obtaining property or selling/buying a house. Payday loans can be used for anything. That makes them a good option when you need instant cash to solve a problem.
The Cons Of Taking A Payday Loan
- Expensive rates
Payday loans attract high-interest rates almost as much as those charged on credit cards. This can be a drawback especially when the loan taken is a small loan which is payable within a short period. These rates applied on a loan which has a short duration i.e. it could be bi-weekly or weekly compared to the annual scale. The rates are usually higher since the money lender is taking risks and a financial liability.
- Possibility Of Recurring Debt
When not careful, taking a payday loan can potentially ruin an individual’s financial future. You may have finished repaying a previous loan but come mid-month, you find that you need urgent cash for bills. This may prompt you to apply for a second payday loan. When this is done through several months, you will find yourself piling debt into more debt. This also leads to financial uncertainty as you will find yourself in the never-ending financial cycle.
- Non-Payment Charges
There are fees that you will be charged when you miss making a payment. This is often stated in the loan contract. Failure to make payments or making late payments can lead to you repaying more money than is necessary. This is so when you have taken a small loan amount which is payable in a short period.
- Possibility Of Ruining Your Credit
Even when money lenders do not do extensive credit checks, they keep records of non-repayment and late loan repayments. Falling behind in making payments for your outstanding payday loan can ruin your credit.
- Not A Good Long-Term Way Out
This loan type should not be treated as the only source of fast cash when you are in financial difficulty. There many other solutions to your financial problem. Risking your future paycheck is not one of them. Missing a payment or late repayment is expensive and can even put you into more debt instead.
- The Amount You Can Borrow Depends On Your Monthly Income
At any given time, you can only borrow as much as your monthly income allows. While some may see this as a disadvantage, it actually works to your advantage. Repaying loans is easier for you this way. It also serves as a deterrent, stopping you from borrowing more than you need. Furthermore, you effectively avoid falling into a debt cycle.
Taking out payday loans will still have an effect on the amount of loan you may borrow from banks. This is especially so when you plan to take a bigger loan an example being the home loan.
When used wisely, payday loans are lifesavers and will offer you the much needed financial backing. This is more so when your savings end up being pillaged by daily expenses and bills. When used badly, payday loans will be a source of your misery. This loan type will put into a never-ending vicious financial cycle. This for you the borrower will mean each cent you earn goes into repaying your creditors which includes payday loan lenders.
The take away is that you need to treat payday loans as an alternative to the last result when you require some fast cash. When an urgent need arises and you must take a payday loan, make certain that you do so since you actually require money. Also, ensure that you can and will reimburse it within the set time period.
On time repayment of your outstanding loan will ensure you do not ruin your credit. It will also help you avoid being charged the late repayment and the non-payment fees. These fees can make you end up paying more than you needed to should you miss a payment or even make late payments.