If you need quick access to a small amount of money and are able to repay it in a short period of time, a short-term personal loan could be an option to consider.
The beauty of short term loans compared to medium and long term loans is that they can give you peace of mind knowing that you’ll only have a short loan tenure or repayment period.
However, it’s important to be aware of their potential costs, as it comes with higher fees and charges compared to regular loans.
Features
Short term loans, in most cases, must be paid off within 6-12 months. Any loan with longer-term is considered a medium-term or long-term loan.
With this type of loan, sometimes referred to as a payday loan or a fast cash loan, you can loan a minimum of SGD 1,000, making it accessible for anyone who may need to borrow short-term funding.
Types of Short-Term Loans
Personal Loan
Short-term personal loans (also available for foreigners) can help in making big purchases. It typically has a lower personal loan interest rate than credit cards. It can be used to combine multiple credit card debts into a single, lower-cost monthly payment (debt consolidation).
These are also deemed to be unsecured loans wherein borrowers don’t need to put up any collateral. Instead, lenders approve personal loans by evaluating your creditworthiness.
Invoice Financing
It is a form of short-term loan where you can borrow money as provision for outstanding invoices from your customers. Lenders will give you an early payment for your receivables and unpaid invoices from your customers.
Payment to the lender will occur upon settling of the invoice (the money lender will interject with the settlement of payment and take the interest charged on the loan before you receive the amount due for the bill/invoice).
Payday Loans
This is usually a small, short-term loan for emergencies that are comparatively more easy to obtain. The term “payday” in payday loan refers to when you write a postdated check (including the entire loan amount, plus interest) to the lender for when pay day arrives. Payday loans customarily possess extra high-interest rates.
Lines of Credit
This type of short-term loan is comparable to using a credit card. By using this, you can access funds from the line of credit at any time considering you will not exceed the maximum amount or credit limit set in the agreement, and meet monthly installment payments while taking into account whatever amount has been borrowed.
Businesses have also been utilizing credit lines for a while now to reach working capital needs and/or capitalize on the advantage of strategic investment opportunities.
Merchant Cash Advances
In a way, this type of short-term loan is more of like a cash advance but still technically set-off as a loan. The lender gives you upfront the loan that you need in exchange for a portion of your forthcoming sales.
How it works is, each time a purchase is made by a customer, a certain percentage of the sale is taken by accessing your credit card receipts or credit facility until the loan is repaid.
Pros and Cons
Short-term loans are gaining popularity and for good reason. Let’s look at some of the reasons why you should consider them.
Pros
Quick Application Process
Most of the short-term loan lenders provide a swift and undemanding application process thus, allowing you to apply for a loan as easily as possible. The majority of short-term lenders have websites and mobile applications, therefore, less paperwork and less hassle, which gives a speedy turnaround time and makes it advantageous to apply for a loan.
Obtained Faster Than Traditional Lending
These loans have considerably slighter risk in-contrast to long-term loans because of a shorter maturity date. The probability of even out accounts with the lender is less likely to change considerably over a short period of time. Therefore, the time it takes for the lender to subsidize the loan is shorter. Approval is usually released within 24 hours.
Flexibility
The previously mentioned loans are very flexible options as they can be custom made to suit your needs in terms of repayment plan alternatives, and interest rates.
Easier to acquire
Short term loans are the savior of borrowers who have less than optimal credit scores, by virtue of, basing on your ability to afford and pay the loan rather than your credit history.
Less interest is paid as the duration of the loan is short
A short-term loan in Singapore is more advantageous in terms of lesser interest amount payable, despite being the interest rates correlated with short-term loans are a bit pricey in some cases. Basically, the lengthier the loan, the higher the total amount of interest you pay.
Help improve your credit score/rating
Taking into consideration that you pay the short-term loan consistently on time, you can actually utilize your short term loan to ameliorate your credit rating or score. To such an extent that you are inclined to be eligible for acquiring a larger sum of loan for a longer period from a traditional lender in Singapore.
Cons
High-interest rate
Customarily, short term loans entice higher interest rates and high monthly payments as opposed to long term loans. Given that you are financing principal debt for a brief while, you may land up paying a consequential sum every month in contrast to what you will remunerate if you opt for a long time loan.
The repayment cost is high and frequent
There are times where you will find it strenuous to make do with the monthly payments, on account of unpredictable revenue streams. Hence, it is invariably important you make certain that cash is consistently and properly allocated to pay off these short term loans systematically.
Penalties for late payment are expensive
Much the same as having high and frequent payment costs, you may come across penalties for being overdue with payments which are generally severe for these sorts of loans.
Poses more risk
It might get tangled up in a common and painful debt trap. The flexibility and ease of access can make you plunge into a constant pattern of borrowing money. The probability of lavishing more than you can afford is an increased possibility of frittering money away if you qualify for a lower-cost term loan. In consequence, it is sometimes inadvisable to rely on short-term loans periodically.
Where can you get Short-Term Loans in Singapore?
1. Money Lenders
For secure loans, you are able to acquire a loan of any amount in conformity with Singapore’s Ministry of Law. The table below refers to the total maximum amount that you may borrow across all moneylenders in Singapore, anytime for unsecured loans:
| Borrower’s Annual Income | Singapore Citizens and Permanent Residents | Foreigners residing in Singapore |
| Less than SGD 10,000 | SGD 3000 | SGD 500 |
| At least SGD 10,000 and less than SGD 20,000 | SGD 3000 | SGD 3000 |
| At least SGD 20,000 | 6 times monthly income | 6 times monthly income |
Singapore lenders can only impose a maximum rate of 4% regardless if the loan is an unsecured or secured one and it will appeal in any case of your income.
Consequently, if you are unable to pay back the loan on schedule, the maximum rate of late interest a lender can charge is up to 4% per month for each month the loan is compensated behind schedule.
2. Banks
While on the other hand, Singapore banks offer low-interest rates ranging from 3% per annum. Even supposing that banks are flexible with their loan amount from small to large, their approval process is quite long. And then there’s the additional need for a good credit score/rating to get a bank’s loan approval.
3. Private Funders
Private funders are under MAS’s excluded Moneylenders Act (Cap. 188). Private lenders can lend money only to accredited investors or corporations, which MAS defines as:
Whose net personal assets exceed in value the minimum loan amounts of SGD 2 million of which the primary residence shall not account for more than SGD 1 million of the net personal assets or whose income in the preceding 12 months is not less than SGD 300,000.
Being an accredited stakeholder (as an individual or corporation), in conformity with MAS norms, you will be eligible to avail of any type of short term loan. All of them put forward medium to large-sized loans at interest rates ranging from 10 to 17 percent per annum, which is not so much as the licensed money lenders.
Although, take note that private funders/lenders commonly demand some form of insurance or collateral, which the accredited investor risks losing on condition of default.
Bottomline
Always keep in mind that overextending may withhold you from enjoying low-interest rates, which can result in an endless cycle of habit-forming and crushing debts.
So before making a commitment to a short-term loan, be sure to contemplate all your options rigorously.
- If you need a small amount of money urgently, and only for a week or a month, licensed money lenders like A1 Credit may be the right option considering how easily attainable and flexible they can be.
- Having marketable securities or current assets that you may utilize as a mortgage for insurance with lenders. Assets that are on standby for a week or so in order for you to acquire the money can be an equitable alternative.
- If you can wait weeks, and months to access the money, and have a good credit history, banks may be the right option. Banks – who mostly are 12-month lenders, offer most of the low level of interest rates and have vast diversification of loan alternatives.
