What Is Good About A Short Term Loan?
November 17, 2022
Your monetary needs constantly change. Sometimes you have a bit of extra cash, and other times you may need to scramble to make ends meet.
A short-term loan can offer a helping hand during the latter times. In fact, it can be an excellent way to get some quick cash without lengthy application processes or waiting periods.
But what is a short term loan? How do you apply for a short term loan, and how long does it take to get approved?
Let’s find out everything about short-term loans in this blog post.
What Is A Short Term Loan?
A short-term loan is a small loan with a repayment period of one year or less. These loans are typically used for emergencies such as medical bills, car repairs, urgent business expenses, or anything else that might come up unexpectedly.
You may borrow as little as $100 or as much as $100,000 with a short-term loan. The interest rate and fees will depend on the lender and your creditworthiness.
The main benefit of a short-term loan is that you can get the money you need quickly and without hassle. Another advantage is that they’re very flexible.
You can use short-term loans for any purpose, be it business or personal.
However, it may not always be called a short-term loan. Fast loans, payday loans, cash advances, lines of credit, and merchant cash advances are some of the other names that a short-term loan may be called.
Let’s have a quick overview of some of these loan types.
Types Of Short-Term Loans
Some of the most popular forms of short-term loans in Singapore are:
A payday loan is a short-term loan that you must return in one lump sum amount (with added interest) on your next payday. Your money lender or creditor can take out the owed amount directly from your bank account.
Therefore, you need to ensure that you have enough money in your account to repay the loan on time. Otherwise, your credit score will take a big hit. Moreover, you may be charged late fees or have to take another loan to repay the older one.
So make sure you know what you’re getting into before taking out a payday loan.
Important: Payday loans are quick to get but often have high interest rates.
Merchant Cash Advance
A merchant cash advance is essentially a fund that gives business owners access to quick cash.
The loan money is given in exchange for a pre-decided percentage of future sales. This means that repayments are made automatically through your credit card sales, as the licensed money lender will have access to your credit facility.
One of the main benefits of merchant cash advances is that they’re easy to qualify for. This is because they’re based on your future sales rather than your credit score.
Line Of Credit
A line of credit is a loan that allows you to withdraw cash as and when you need it, up to your approved limit. The best part is that you only pay interest on the amount you use, and not the entire credit limit.
So if you’re approved for a $10,000 line of credit, you can use as little as $100 or the entire amount, depending on your needs.
And if you don’t use the entire amount, you don’t have to make any repayments until you need to withdraw more cash.
Lines of credit are best for business owners who need cash for seasonal or occasional expenses.
This is a type of loan that allows you to use your unpaid invoices as collateral. This means you can get a quick loan to fulfil your needs until your clients pay you.
But how does that work?
Let’s say a client owes you $10,000 but doesn’t want to pay until 60 days later. With invoice financing, you can get up to 80% of the amount ($8,000) upfront from the lender.
Once your client pays the invoice, the rest of the 20% ($2,000) will be released to you, minus the fees charged by the lender.
Put simply, invoice financing allows you to receive money from a bank or licensed money lender in exchange for payments owed to you.
Now that you know some common types of short-term loans, let’s see where you can get them.
Where To Apply For Short-Term Loans
You can get two short-term loan options in Singapore: banks and licensed money lenders.
Several banks in Singapore offer short-term loans with low interest rates, which make them a reasonable lending option.
But they usually have lengthy application processes. This means you might not get the cash as quickly as you need and may have to wait a few days.
Moreover, banks have strict eligibility criteria and look at your credit score rather than your cashflow. So your loan application will likely be rejected if you don’t have a good credit score.
This is where licensed money lenders come in.
Licensed Money Lenders
Licensed money lenders are your best bet when you need quick cash. Their application process is fast and straightforward – you can get a loan within 24 hours.
Moreover, you don’t need to have a perfect credit score to qualify. Even if you have a bad credit score, you can still get a loan from a licensed money lender.
But remember that licensed money lenders charge high interest rates and offer limited loan amounts based on your annual income.
However, being strictly regulated by the Registry of Moneylenders, they must follow certain rules regarding interest rates, processing fees, and debt collection.
This makes them a safe option to borrow money legally in Singapore.
How To Apply
The short-term loan application process can vary from one lender to another. But a few general steps are as follows:
1. Either apply online or visit a licensed money lender’s business premise in person.
2. Fill up the application form and submit the required documents. You will need your:
- Three months’ of payslips or account statements
3. Wait for your application to be approved
4. Receive your funds.
Remember that the requirements can change depending on your money lender and the type of loan you choose.
However, ensure you don’t accept loans without meeting your money lender face to face. This is mandatory by law.
How Long Does Approval Take?
Like the application process, the exact loan approval period varies from one institution to another. But banks usually take three to seven days to assess your application and disburse the loan amount.
On the other hand, licensed money lenders in Singapore can approve your application and release the funds on the same day.
Some licensed money lenders may even process your application within minutes and provide instant cash within an hour or so at its office location.
Pros And Cons Of Short-Term Loans
Now that you know about the application, requirements, and approval process of a short-term loan, it’s time to look at its advantages and disadvantages.
- The application and approval process is straightforward.
- Short-term loans get you instant access to cash.
- Bad credit score? No problem. You can still get a loan from licensed money lenders.
- The repayment period is short, which helps you save on interest payments.
- You can use the loan amount for any purpose.
- No collateral is required.
- Short-term loans come with high interest rates.
- You can only get a limited loan amount.
- The repayment period is short, so you must be sure you can repay the loan on time.
- If you default, the penalties can be high.
These are some of the upsides and downsides of a short-term loan. If you think a short-term loan isn’t your best option, you can explore some alternatives.
Alternatives To Short-Term Loans
If you don’t want to get into a loan agreement with a money lender or wait to hear back from a bank, or don’t think you can repay the loan on time, there are other options you can consider.
Borrow Money From Friends And Family
This is the easiest and most convenient way to get quick cash. But it can put a strain on your relationships if you’re unable to repay the amount.
Get A Payday Advance From Your Employer
If you need cash urgently, you can ask your employer for an advance on your salary. However, this option is not available to everyone.
Use Your Credit Card
This is another quick and convenient way to get credit. But keep in mind that credit cards come with high interest rates.
Look For Government Grants
The government offers various grants that can help you with your financial needs. The government operates various schemes such as the Temporary Relief Fund, Covid-19 Support Grants, and others.
Should You Apply For A Short-Term Loan?
Now that you know what is a short term loan, you can see that they can help you meet your financial needs quickly and conveniently.
Still, it’s always wise to weigh its pros and cons first.
So if you understand the terms of a short-term loan and can repay it on time, it can be a great option if you need some cash.
Do you wish to apply for a payday loan or any other short-term loan?
Or apply for a loan with us now.