Consider this situation: You are a salaried employee, earning a fixed income that is enough to cover your monthly expenses as well as certain unexpected but small expenses. In the middle of a month, some emergency comes up that requires you to spend some hundreds of dollars. You don’t have enough savings, you are not getting your next paycheck anytime soon, and you don’t want to take a personal loan just for that situation. You wish you could borrow that much amount from someone until your next paycheck arrives.
Does that situation sound familiar? Of course, you have been through such a situation. It’s a very common situation that every salaried employee faces every once in a while. It’s for these situations that payday loans exist.
So, what’s a payday loan? It’s a loan, an expensive one, which allows you to borrow an amount that you can pay back with your next paycheck. In other words, if your loan requirement is not more than your salary, you could consider this option to meet your emergency funds requirement.
It’s a regulated industry now but this type of lending started way before most of the today’s regulatory bodies were even established. The idea of payday loans is probably centuries old when bank accounts were a rare thing. During those days, some lenders started giving out loans to the workers that they would return with their subsequent monthly wages. Still illegal and unauthorised, such loans became popular all over the world. It was only after a few controversies that regulators came into action and decided to regulate such loans.
How Payday Loans Work
As discussed above, these are very short term loans and become due as soon as you get your paycheck. You can borrow any amount as long as you pay it back with your next paycheck. To secure a payday loan, all you have to do is issue a post-dated cheque to the lender with the amount you want to borrow (plus the loan fee, if any). You can hand over the cheque to the lender who will encash it once you receive your next salary.
The interest rates on such loans are very high. That’s why these are generally preferred when there is an emergency that can’t wait till your next paycheck and when you are confident about paying it back on time. The biggest advantage of these loans is that there is no credit check. So, if you don’t have a good credit history, getting a payday loan won’t be a problem.
Interest Rates for Payday Loans
The rate of interest charged on payday loans is very high, compared to most other borrowing instruments. This rate may vary from lender to lender and is capped at 4% per month. It may not look like a big amount, but if you look at it closely you would know it translates to 48% p.a. – that’s about double the interest charged by credit cards.
How Much Can You Borrow?
The Ministry of Law, Singapore has clearly defined the limits for borrowing from registered moneylenders. These limits are based on your annual income. You can borrow:
- Up to S$3,000, in case your annual income is below S$20,000.
- Up to your two months’ income, in case your annual income is equal to more than S$20,000 but less than S$30,000.
- Up to your four months’ income, in case your annual income is equal to or more than S$30,000 but less than S$120,000.
- Any amount as you like, in case your annual income is equal to or more than S$120,000.
How Fast Can You Get a Payday Loan?
Since payday loans don’t require any credit history check or long list of documentation, the approval on these loans is very quick. After you submit all the required documents, you can get your loan approved and cash disbursed within minutes, subject to verification of the details you provide. There are some lenders that claim to disburse your loan within 15 minutes.
Are You Eligible for One?
To be eligible for a payday loan in Singapore, you must be:
- At least 21 years old.
- A Singaporean or a Singaporean PR or a foreigner with a valid work permit.
- Permanently employed and making CPF contributions.
- Not facing bankruptcy proceedings.
Documents You Will Have to Provide
For salaried Employees and Commission Earning Individuals
- SingPass with 2FA activated
- Latest utility bill as address proof
- Payslips for the last three months (applies only to individuals with no CPF contribution)
- Employment letter
For Self-Employed Individuals
- SingPass with 2FA activated
- Latest Income Tax NOA
- Accounting/Corporate Regulatory Authority (ACRA)
- Latest utility bill as address proof
What Repayment Tenures Are Available
Since these are very short term loans that help you to get through the rest of the month until your next paycheck arrives, the tenure for payday loans usually ranges from one week to five weeks.
Can You Get One Online?
There are many registered moneylenders that let you apply for a payday loan online. These lenders allow to your submit an online enquiry form. Once you submit this form, wait for the moneylender to get back to you with all the details you need to know. However, once you are ready to sign up for the loan, you may have to visit the moneylender’s office to sign the contract and get the cash.
Payday Loans and Credit History
Is a Credit History Needed for Payday Loans?
No, most registered moneylenders in Singapore don’t perform any credit checks for the purpose of approving your payday loan. If your credit rating is not looking good, you may still get your loan approved if the moneylender is convinced about your financial health.
Are Payday Loans Recorded in the Credit Report?
While the moneylenders don’t run any credit check while approving your loan, they do report to credit rating authorities about your loan application. If you fail to repay the loan or if there is an instance of late payment, it will be notified to the authorities and it can hurt your credit rating. On the other hand, if you repay the loan on time, it can help you improve your credit history.
How is the Loan Disbursed?
After verifying your financial situation and your personal details, most Singapore-based registered moneylenders promise to disburse the loan on the spot in the form of cash or cheque. However, if you prefer funds transferred directly to your account, you can check with the concerned moneylender about the same.
Check Out Some Licensed Payday Loan Companies in Singapore
When applying for a payday loan, it’s important to ensure that the lender is approved by the Registry of Moneylenders. Borrowing from unlicensed moneylenders is not advisable, no matter how big your financial emergency. Check out some of the licensed payday loan providers in Singapore:
- 101 Credit Pte. Ltd.
- 1133 Moneylenders Pte. Ltd.
- 96 Credit
- A1 Credit
- 1st LG Credit Pte. Ltd.
- ABI Credit Pte. Ltd.
- ABK Leasing
- ABM Creditz
- Alpha 8 Credit
- Andal Enterprise
- Avis Credit
- AKB Moneylenders
- Credit 21 Pte. Ltd.
- Dalip Singh & Company
- CreditMaster Pte. Ltd.
- Dynamic Money Lenders
- Fast Money Pte. Ltd.
- JML Credit
- Kairon Services
- Karthik Money Lending
- KBB Credit
- Majestic Credit Pte. Ltd.
- Unlimited Finance Pte. Ltd.
- Vera Capital Pte. Ltd.
- Winz Credit Pte. Ltd.
- UK Credit
- Synergy Credit Pte. Ltd.
- Swift Credit Pte. Ltd.
- SME Care Pte. Ltd.
To check out the complete list of such lenders, click here.
Things to Keep in Mind Before Taking a Payday Loan
Taking a payday loan is a serious and an expensive commitment. Don’t rush into it and consider the following things before you sign up for one:
Do You Have Any Better Alternatives?
As you know payday loans are expensive, so make sure you know all the options you have before you sign up for such a loan. Singapore government offers various financial assistance schemes to help individuals meet their emergency borrowing needs. You can get in touch with those agencies to learn more about these schemes.
Is the Moneylender Licensed?
Avoid borrowing from unlicensed moneylenders who are known for harassing borrowers as well as charging unreasonably high interest rates. Pay attention to the advertisements of such lenders. Licensed moneylenders are allowed to advertise only through business/consumer directories, their own website, or any advertisement placed inside or outside their office premises. All other forms of advertisements, like SMSes, emails, and flyers, are prohibited, so it is advisable to not respond to them.
How Much Do You Need to Borrow?
Borrow what you can repay. In other words, don’t borrow unless it’s an emergency and don’t borrow more than what you need. If you are unable to repay the loan, the additional interest charges and late payment fees could put a serious strain on your finances.
What Are the Terms and Conditions of the Contract?
Make sure you understand every detail of the contract. Singapore government requires these lenders to explain the contract in a language that you understand. Also, carefully consider the consequences of agreeing to any condition that results in caveat on sale of your personal property. In case a caveat is lodged, you will not be able to sell the property without first repaying the lender.
Is it the Best Option Available for You?
Once you have decided to take a payday loan, shop around for the best terms. Consider and compare all types of fees and charges associated with these loans. Don’t make a commitment until you are satisfied with all the terms of the contract.
How to Tell if the Loan Offered Is a Good One?
A loan can be considered as a good one if it has:
- Attractive interest rates: Compare the interest rate on these loans offered by different lenders. The Singapore government has capped the interest rate on such loans at 4% per month. However, even with this cap, the interest on such loans is about twice the interest you pay on credit card borrowings. Therefore, compare the rates and choose the one that is most reasonable.
- Low other costs: Apart from the interest rates, there are various other costs as well that you should compare. These costs include processing fee, late payment fee, and overdue interest charge, among others. Such charges can make a huge difference to your overall cost of borrowing; make sure you compare them and consider the loan that minimises this cost.
- Favourable terms of the contract: Always read the terms and conditions related to such loans. Choose a loan that offers the most favourable terms. This means if there is any such thing in the contract that is confusing, either get it clarified or avoid opting for that loan if you’re not satisfied with the explanation. For instance, if the moneylender is withholding a part of the principal amount for some reason, it is better not to commit to such a loan. Similarly, if the lender is asking you to sign a blank/incomplete contract, try to borrow from another lender instead.
When Should You Take This Loan?
Like any other loan, payday loans have their own advantages and disadvantages. There are certain situations when taking a payday loan can be really helpful. Check out some of those situations:
- When there is a medical emergency: In such situations, you need cash immediately and there is no other loan that is approved and processed as quickly as a payday loan. Unlike personal loans, payday loans are usually disbursed in minutes after the lender verifies your documents and personal details. However, make sure you borrow an amount that you can easily pay back with your next paycheck.
- When you have a poor credit history: Payday loans can be really helpful in situations when banks refuse to lend you money due to your poor credit history. Moneylenders don’t run any credit checks to approve your payday loan. In fact, if you repay the loan on time, it may help your improve your credit score.
- When the loan requirement is small: When the amount you need to borrow is really small, considering a payday loan could make sense as it is easy to apply and is generally approved within minutes.
How Should You Repay It?
Failing to repay a payday loan could turn out to be a very costly mistake, considering the high interest and late payment charges involved. Therefore, it’s important to ensure that you are repaying the loan when it’s due. Keep the following things in mind to ensure a smooth repayment:
- If you are planning to make an online transfer for loan repayment, make sure you have enough funds in your account.
- If you don’t have an account with any local bank, check with the lender about other payment options available. Most lenders accept payment in cash as well.
- If you are planning to make an early repayment, make sure to check the early repayment charges. There are some moneylenders who don’t charge any early repayment fee and even offer a discounted rate if you settle the loan before it’s due.
- If you are short on funds at the time of repayment, your lender may offer you to roll over the loan. Loan roll over allows you to extend the loan tenure. However, rolling over a loan means you will pay more charges and more interest. Instead, in such situations, you could consider taking up a new loan, which would be relatively cheaper.
How Payday Loans Are Different From Personal Loans
If you are someone looking to raise funds quickly and are confused between a payday loan and a personal loan, check out the key differences between the two to know which loans would work best for you.
Most Singaporean lenders require you to have a minimum annual income of S$20,000 to be eligible for a personal loan. However, you can obtain a payday loan even if your annual income is below S$20,000.
Payday loans are generally suitable when there is a financial emergency but the amount you need is not very large. If the loan required is for a few hundred dollars that you can repay with your next paycheck, you could consider taking this option.
However, if your borrowing requirement is large, probably some thousands of dollars, then you might consider taking a personal loan.
Payday loans are very short term loans, with tenure usually ranging from a few days to about a month. However, personal loans allow you to borrow for a longer tenure. In Singapore, most banks offer a tenure of 1-5 years on personal loans.
When it comes to interest rates, there is a huge difference between the two loans. Personal loan interest rates cost around 7-8% p.a. in comparison to the payday loans that cost around 4% per month (or 48% per annum).
Moneylenders don’t perform any credit check when you apply for a payday loan. However, in case of personal loans, you cannot avoid a credit check. Banks approve a personal loan application only after assessing your credit history.
Ministry of Law’s Guidelines on Payday Loans
In Singapore, the regulation of moneylenders comes under the purview of the Ministry of Law. The Ministry of Law has framed certain guidelines for such lenders that offer payday/short term loans in Singapore.
For Instance:In 2015, the Ministry of Law issued a guideline stating that registered moneylenders cannot charge more than 4% per month as interest on the loan. The law became effective from 1 October 2015. Apart from the interest rates, there are guidelines on late interest charge, late repayment fee, processing fee, and other costs associated with such loans.
You can find out everything you need to know about these guidelines here.
Do Banks Provide Payday Loans?
No, banks don’t offer payday loans. However, they offer cash advance loans which are quite similar to payday loans. You can take a cash advance loan using your credit card or with your personal line of credit. In either case, you can borrow an amount up to your available credit limit.