A short-term loan can be a lifesaver when you need some quick cash.
But before you jump into borrowing money, it’s essential to understand what makes these loans different from traditional bank loans.
So what is a short term loan?
This blog post will tell you everything about a short-term loan, from the types of short-term loans available, application process to approval time, and some alternatives.
We’ll also look at some of the good and bad things about short-term loans, so you can decide if it is the right option for you.
A short-term loan is a type of unsecured loan that you can obtain from a financial institution or private lender.
These loans are typically for small amounts of money and come with higher interest rates than traditional bank loans.
You can borrow small amounts such as $100 or $200, or bigger loans of up to $100,000 for short-term loans.
The repayment period for a short-term loan ranges from a few weeks to one year. Or you may need to repay the loan in full by your next payday, depending on the type of loan you choose.
Let’s take a closer look at some of the advantages and disadvantages of short-term loans.
Short-term loans are offered by both banks and licensed money lenders in Singapore. Here’s how the two options compare:
Banks offer short-term loans with lower interest rates than licensed money lenders.
However, they have stricter eligibility requirements. You may need a good credit score or collateral to qualify for a bank loan.
Moreover, bank loan applications require more paperwork and time to process, which goes against the whole point of a short-term loan.
You may have to wait for a few days to get your funds.
Licensed money lenders offer loans with higher interest rates than banks.
But they have fewer eligibility requirements and can approve your loan quickly. Some licensed money lenders may even get you the money within an hour of application.
Plus, licensed money lenders have less-stringent eligibility requirements for short-term loans.
They may grant you a loan even if you have a poor credit score – that is, if you have a decent cashflow or meet the minimum income requirements.
However, licensed money lenders are not allowed to offer uncapped loans.
The Registry of Moneylenders regulates all licensed money lenders and allows them to lend no more than six times your monthly income if you earn at least $20,000 a year.
Still, licensed money lenders are a better option than banks if you’re looking for a quick and easy loan.
Although banks and money lenders have different terms and conditions for loan agreements, their application processes are somewhat similar.
Here’s how to apply for a short-term loan:
If you are a foreigner residing in Singapore, you may be liable to submit some extra documents. Make sure you ask for complete requirements based on your residency status.
Tip: Don’t accept loans on calls and emails, which is not allowed anyway for licensed money lenders. Visit a money lender’s business office to meet face-to-face.
The short-term approval time varies based on where you apply for it.
For example, banks might take three days or one week to process your application.
On the other hand, licensed money lenders are usually quick to approve your loan and should be able to disburse the loan amount on the same day.
Now, let’s look at different short-term loan options available in Singapore.
You’ll come across the following short-term loan options in Singapore:
A merchant cash advance is a business loan where you borrow money based on future sales.
The lender gives you an amount that’s a percentage of your projected sales.
You repay the loan with a pre-agreed percentage of your credit and debit card sales until the loan is repaid in full, including interest and fees.
Licensed money lenders feel safe giving out merchant cash advances because they get access to your credit facility for automatic recovery.
Also, since it is based on projected sales instead of your credit score, it’s relatively easier to qualify for a merchant cash advance than a regular loan.
Overall, it’s a good option if you need quick cash to grow your business.
As its name suggests, this is an unsecured loan that you can use to tide over your finances until your next payday.
The loan amount is typically small and must be returned in one-time repayment on your next payday.
Payday loans have high-interest rates and fees. So they are a last-resort option when you need quick cash but don’t have any other option.
Also, remember that money lenders are entitled to take out the owed amount from your bank account through Continuous Payment Authority (CPA).
So make sure you can repay the loan on time.
Otherwise, your credit score will be negatively impacted. Plus, you will end up paying more in interest and fees.
This is a type of loan where your bank or licensed money lender approves an amount you can borrow up to a certain limit.
You can draw from this approved amount as and when you need it.
For example, let’s say your limit is $100,000. You can borrow $10,000 today and repay it in a few days. Then, you can borrow it again when you need it.
The interest is charged only on the amount you use, not on the entire approved limit.
This makes a line of credit an excellent option if your business has occasional short-term cash needs.
This is a short-term loan where you use your receivables (unpaid invoices) to get some quick cash.
Invoice financing has two common practices in Singapore:
In this method, also known as invoice discounting, your money lender gives you a percentage of the unpaid invoice in advance.
When your client pays the invoice, you must return this amount to your money lender.
In exchange, the money lender will charge you a fee or interest on the total duration of repayment.
In this method, you sell your receivables (invoices) to a lender at a discounted rate. The lender pays you the money and becomes the owner of the invoices.
This relieves you from the invoice payment responsibility, as now the money lender will collect the amount from your customer.
Whichever option you choose, invoice financing is a cost-effective solution for businesses that need quick cash to cover their day-to-day expenses.
So these are some of the short-term loan options available in Singapore.
Now, let’s see what other financing options you have.
If you don’t think a short-term loan is a suitable option for you, here are a few alternate options:
Short-term loans are quick, handy, and easy to apply for.
But with plenty of options, deciding which short-term loan is right for you can be challenging.
Qualified and professional loan officers at Katong Credit can help you decide and secure a loan on the same day.