There are many who are taking up personal loans in Singapore, but not many actually understand the term ‘payday loan’.
Designed as a type of cash advancement, Payday loans are meant to help tide you over short term financial commitments. If you have any due payments, but have yet to receive your pay cheque, then a Payday Loan may be the solution for you. However, before you sign on the dotted line, there is much more than meets the eye when it comes to Payday loans.
A payday loan is an unsecured, short-term loan with high interest rates. Typically, the limit on amounts loaned are relative to your monthly income.
What are the risks of Payday Loans?
To put things into perspective, a payday loan does not require that you put up any collateral such as your car, and may only last for two to three weeks. However, in return, many may charge an interest rate in the region for 24% for just those couple of weeks. That is equivalent to a staggering 600% or more when adjusted to an Annual Percentage Rate (APR). For comparison, credit cards in Singapore tend to charge around 25% APR, or about 2% per month.
Where things might get dangerous for you is when you have a recurring situation of not being able to meet financial obligations before your cheque is cashed in. If so, you will be forced to repeatedly take out Payday Loans, leading to a potential snowball effect with exponentially increasing debt levels due to the high interest rates. In fact, in a recent study done by The Pew Report, it was found that 41% of borrowers took this cash infusion to pay off their previous payday loan.
Additionally, entering this cycle of debt will impair your credit rating, thus preventing you from taking out other types of loans in the future.
So who are Payday Loans for?
The major advantage of Payday Loans is the lack of credit assessment and hassle free processing nature. Little if no credit checks are conducted, instead only a proof of monthly income is required. As such, access to cash is almost immediate, making it attractive for those in urgent need of a small injection of cash and do not own a credit card or qualify for other types of loans due to poor credit scores.
It should be noted here that the loan should only be used for emergency situations, and not as a solution to persistent cash shortfalls. Additionally, you should never take multiple payday loans from various money lenders in an attempt to raise larger amounts of capital. In all likelihood, the combined interest will likely throw you into a prolong period of debt.
Alternatives – Personal Loan Singapore
There are plenty of viable alternatives to payday loans. While these do not match in convenience and immediacy, personal loans in Singapore can still be approved within a day at licensed money lenders, and within a week at banks.
Should you find yourself in a crunch, do seek advice on picking the right financing solution.