A payday loan is an unsecured, short-term loan that provides you money as you wait for your next paycheck. The reason people apply for it? It is simply due to a common problem we all have at one point of our lives; financial constraints in the middle of the month.
Applying for the payday loan is easily approved since the lenders usually don’t take your poor credit score into account. Instead, they would only ask for a proof of income such as a recent payslip to ensure that you are still employed with a fixed monthly income.
Most importantly, payday loans are designed to be smaller than the amount of your salary so that you can pay them off easily.
Whom should take a payday loan?
A payday loan could be helpful for anyone, but it is especially convenient for those involved in an emergency that needs immediate financial attention. Borrowing some cash from your family and friends could be an alternative, however, it is not easy to ask from your close ones without feeling guilty or shamefaced.
That is why a payday loan is the best solution.
The common criteria you need to meet are employed with a fixed monthly income, 21 years old and above, and a Singaporean citizen, permanent resident or working in the country with a valid work permit.
Pros of a Payday Loan:
- Leniency in your credit score: Payday lenders usually don’t check your credit history, or if they do, they are usually forgiving. Therefore, a poor credit score should be the least of your worries when you intend on applying for a payday loan.
- Small loan amount: Personal loans are restricted to a minimum amount that can be burdening in the long run. Thus, taking out a personal loan won’t be worth it if you only need a small amount of money for an emergency. Payday loans, on the other hand, are meant to be taken out in small amounts down to only a few hundred and can be paid off within only a few weeks.
- The ability to improve your credit score: Payday loans can help to improve your credit score by your ability to pay off the loan which will be notified by the credit score authorities The more frequent you take out payday loans and pay them off on time each time, the “merrier” your credit score will be.
However, it is important to take note that your credit score will only rise if you are consistently punctual to repay within the time frame agreed with your lender.
Cons of Taking Out a Payday Loan:
- High-interest rates: Paying on time will increase your credit score, but paying late? It will only cause your interest rate to climb significantly high. Which is why you are stressed to apply for a sum of money you know you can repay within only a few weeks. Otherwise, the cost of the whole loan will exceed the amount you apply to a great extent.
The Process of Getting a Payday Loan:
Unlike bank loans, applying for payday loans are quick and easy. The renowned licensed money lenders will usually have an online platform to be made accessible and ease your application process without having to leave your house.
Simply fill in your details in the form provided and you can expect a phone call from the loan officer within a day to set an appointment for your consultation.
Once your loan application is approved, you will have to sign the loan agreement with the money lender, and the loan will immediately be hand into you either in a form of cash, cheque or a bank transaction.
Keep These in Mind Before You Apply
- Do not borrow from dodgy money lenders since there is a high possibility that they are swindlers
- Verify whether a money lender is licensed first by checking the list of licensed money lenders available on the Ministry of Law website
- Try to avoid lenders that require collateral since they can seize your property if you ever default.
- Go through the contract with your lender and make sure you understand very well of what you are getting yourself into
- Take out a payday loan only when you are 100% sure that you can pay it off
- A payday loan needs to be paid with the fees within only a few weeks. Hence, make sure you take out an amount way lower than your actual salary
The Key Difference Between a Payday Loan Compared to Other Loans
Typically, interests are charged annually for any type of loan or credit account. However, payday loans are charged within an extremely shorter period of time; two to four weeks, depending on your lender.
Basically, the usual interest rate you pay for other loans, are multiplied approximately 12 to 26 times.
For this reason, payday loans are typically kept away from due to their bad reputation on charging high-interest rates. Not only that, the high-interest rates could cause you to get stuck in a never-ending debt cycle ONLY if you have a bad repayment strategy from the beginning.
Debts are often caused by huge loan applications that you need to repay with additional fees using 100% of your recent paycheck. Undoubtedly, you will be short of cash again in the middle of the month, apply for another payday loan and get stuck again for not being able to pay off the loan. This will ultimately end up in a vicious debt cycle.
Not to worry, as long as you apply from a licensed money lender that can guide you on the appropriate amount you can take out according to your salary, you won’t be faced with complications during the repayment process.
Now that you have more insight into taking a payday loan, do not hesitate to contact us if you ever wish to take out a payday loan with a thorough consultation that prioritizes in making sure that you won’t fall into debt.