What Is A Payday Loan?
It is a short-term, unsecured loan that has a very high interest rate that Singaporeans use to cover rent, bills, along with other expenses that cannot wait until the next payday. Normally, you can get a payday loan in Singapore so long as you have a stable job with a fixed monthly income and a bank account.
Payday loans do not work like traditional bank loans that usually advertise lending 2 to 3 times the monthly salary. Rather, the maximum amount that you can get with a payday loan is around half your monthly income.
Payday loans have various pros and cons associated with them and this article will look at them.
Pros Of Taking Out A Payday Loan
Payday loans are not that different from traditional loans you would normally take out. The key difference is that they are designed for short-term borrowing i.e. less than a month and you have to pay them back quickly. So long as you follow the rules of paying before the due date, payday loans can help get you through temporary cash problems.
1. You Get Cash Quickly
With payday loans you get your cash quickly, usually in less than 24 hours. Compare this with a traditional bank loan that can take several working days to process and disburse the cash.
2. You Deal With A Licensed Moneylender
Even though you can get a short term loan from an unlicensed moneylender, it is advisable to choose licensed moneylender. Unlike loan sharks, all licensed moneylender are licensed by IPTO and follow strict lending guidelines.
3. They Do Not Conduct Credit Checks
The reason why traditional bank loans take so long to get approved is that they require a thorough search of your financial background. Today’s rules on unsecured loans have it such that everyone gets a thorough search. However, the payday loan lenders will not put you through such level of stress.
Cons Of Taking Out A Payday Loan
1. Very High Interest Rates
If you think that credit card interest rates are high then think again. Payday loans attract about the same interest rates as credit cards but in this instance, the duration is much shorter i.e. it can be weekly, bi-weekly as opposed to an annual scale.
2. Probability Of Setting Up Yourself For A Vicious Financial Cycle
If you are not careful, payday loans can ruin your financial future. You might have paid off your previous payday loan but once mid month arrives you might find yourself in need of cash to pay your bills. This might prompt you to take out another payday loan. If you do this month in month out you can be staring at serious financial uncertainly since you will be piling debt on top of more debt.
3. If You Are Not Careful, You Can Destroy Your Credit Score
Just because payday loan lenders do not run credit checks does not mean that they do not report non-repayment or late payment of the loan. If you fall behind on your payday loan payment, it can ruin your credit just like as with any other loan.
Payday loans can still affect the amount that you can borrow from a bank if you ever desire to take out a bigger loan such as a home loan.
If you use them wisely, payday loans can be a lifesaver and can provide the very necessary financial ‘reinforcement’ in case your savings are getting pillaged by every day bills and expenses. If you use them poorly, payday loans can be the source of much misery. They can put you in an endless vicious financial cycle whereby every cent you make goes towards paying your creditors including the payday loan lenders.
The bottom line is that you should keep payday loans as an option of last resort if you need cash. If you must take out a payday loan ensure that you only do so if you really need the cash and that you pay it back within the prescribed period.