Advantages and Disadvantages of Payday Loans

Advantages and Disadvantages of Payday Loans
Payday Loan

You’ve worked hard for the entire month, and you’re looking forward to finally getting your pay by the promised pay cut period, as usual. However, an incident has helplessly disabled your employer from issuing pay until they resolve it within the next week. 

Unfortunately, as any employee, you have bills to pay, a house loan to settle, and mouths to feed. It’s truly unfair for employers to mishandle pay cuts, but the fact is clear: you have no money. Thankfully, payday lending services from licensed moneylenders can tide you over until your employer resolves their matters.

What is a Payday Loan?

A payday loan is a financing issued by payday lenders, such as Singapore’s licensed moneylenders, matching your typical pay cut amount. If you borrow payday loans from licensed moneylenders, the application process is simple. Plus, anybody with bad credit can borrow.

In Singapore, freelancing Singaporeans find the advantages of payday loans an excellent backup plan. Most freelancers struggle with asking for timely pay from their one-off and repeat clients. These short term loans have nominal amounts, making it impossible to have high debt unless you fail to pay your loan on time.

Let’s have a look on the Pros and Cons of Payday Loan! 

Benefits of Payday Loans

1. Fast Approval Rate

Payday lending institutions have fast approval rates for payday loans. You’ll only need to show proof of your employment and regular salary. 

Among all payday lending institutions, licensed moneylenders can release your payday loan within the same day after you submit all your requirements. You can apply for payday loans online and get approval 24/7 too.

Truthfully, this is one of the major benefits of payday loans. The faster you get your cash advance, the easier it will be for you to get out of sticky situations, such as inflated utility bills and debt. 

Honestly, your payday loans can be used for many other options. For example, if you need a new phone for work, you can use a payday loan and take advantage of a gadget sale on the same day.

2. Emergency Medical Financing

Medical emergencies are costly ventures, especially if you get into an accident in Singapore. While the country has the world’s best medical technologies, facilities, and professionals, it’s also the most expensive even for Singaporeans. 

Thankfully, you can quickly double your medical buffer through payday loan amounts. In doing so, you’ll have enough to cover a room and initial tests.

Honestly, payday loans aren’t enough for medical financing. But, having enough cash on hand to secure the patient’s room is critical to saving a life. Quick, same-day cash advance, such as payday loans, are extremely useful in these situations.

3. Numerous Dependable Moneylenders

Singapore has many reliable licensed moneylenders whose every activity is fully monitored by Singapore’s Ministry of Law. 

Each of these licensed moneylenders have undergone tests to remove and guarantee zero possibility of predatory activities. 

In the past, many Singaporeans are aware of ah longs or loan sharks who use payday loans as a means to begin cycles of debt.

Additionally, licensed moneylenders cannot charge you a higher interest rate than 4%, which MinLaw stipulates in the Moneylenders Act of 2008. Furthermore, moneylenders will function similar to established financial institutions. They will honor all contracts they’ve made and signed with you.

4. Has Minimal Requirements

Out of all fast-cash loans available from licensed moneylenders, payday loans have the least requirements. 

For example, lenders will ask you only for your employment letter of offer, payslips, and identity card. These are documents readily available for both Singaporean and foreign workers.

Plus, moneylenders only have one requirement for borrowers: pay the loan by the deadline, which is usually the next pay cut. 

Once you accomplish this, you will have zero concerns about the high interest rate you might get, especially if you have a junk credit score.

5. Negligible Credit History and Score Ratings

Speaking of credit scores, licensed moneylenders require no minimum credit. It’s alright for employees with bad credit to have payday loans. 

However, they’re still subject to higher interest rates because payday loans are unsecured loans.

Fortunately, as long as you pay back your loan by the deadline, as we’ve mentioned earlier, you’ll have a minimum problem with interest rates. 

You can take out a payday loan, have it used for anything, and pay your next paycheck to your lender.

Payday Loan Limitations

1. Limited Available Loan Amounts

Unfortunately, payday loans can only supply you with the same pay you get regularly. Because they’re short-term loans, licensed moneylenders cannot lend you a higher loan amount. 

On the other hand, they have a full-fledged lending service. A personal loan might be a better option than payday loans, though it has a different set of requirements and dynamics.

In short, if you apply for a payday loan, make sure you consider the possible amount you can get. They don’t work or function like traditional loans (because you can get them in one hour), but they’re useful for many situations and emergencies.

2. High Interest Rates

Payday loans are highly advantageous, especially if you’re in a financial crunch requiring double of your income in a particular period. 

However, it’s greatly unfortunate to deal with high interest once you miss a single repayment. Truthfully, all licensed moneylenders have a 4% interest cap that MinLaw mandates, which should keep you safe.

However, a 4% interest rise plus penalty fee can add up slowly if your repayment delays continue. 

In case you lose your job due to an unfortunate situation, you have no recourse, such as payment protection insurance that banks provide borrowers, helping them get back on their feet in one year.

3. Can Start a Cycle of Debt If Left Unattended

Because they’re high-interest loans, payday loans will eat up your income if you fail to pay them consecutively. With MinLaw-approved terms and conditions, you can get a certain reprieve, but you’ll deal with a lengthy payment process.

Licensed moneylenders can file a claim against non-paying Singaporeans and borrowers. If they win the case, you pay for their legal fees too.

In short, make sure you’re readily prepared for certain payday loan consequences. If you can’t deal with the high interes, it’s best to save up money. 

Most successful borrowers use payday loan services as emergency cash services.

4. Targets Low-Income Singaporeans and Foreigners

We can enumerate many benefits of payday loans. However, at the end of the day, lending advertisements always target low-income Singaporeans and foreigners who have no access to Singaporean bank services.

Truthfully, only ah longs or loan sharks go beyond the MinLaw’s money lending service advertisement limitations. A legitimate moneylender can only advertise through their website and within proximity of their existing branches. If you’ve received an outreach message about low-interest payday services, think twice.

Legitimate lenders do target low-income borrowers, but they have no predatory practices as MinLaw governs their activities. In doing so, it ensures only fairness in every transaction.

If It Doesn’t Work For Me, Do I Have Alternatives?

You have a great number of alternative products if payday isn’t working for you. Take note: their terms and conditions are quite similar with the financial product with a few caveats.

1. Personal Loans

Licensed moneylenders can provide you up to six months of your monthly salary in a single personal loan release. On the other hand, your interest rate cap will still be at 4% because it’s still an unsecured loan. It’s greatly beneficial for emergencies that need more than double your salary.

Advantages Disadvantages
1. Higher Available Loan Amounts

Get up to six months of your regular salary immediately. This amount is helpful if you’re dealing with higher-than-usual financial emergencies and want to pay a longer loan term.
1. It’s Still An Unsecured Loan

You won’t have an option to appoint a collateral. However, some licensed moneylenders can make exceptions.
2. Accessible Through Licensed Moneylenders

Virtually every Singapore licensed moneylender offers this service. Truthfully, the terms, conditions, interest, and loan amounts are parallel to each other.
2. Noticeably Higher Interest Rates Than Payday Loans

Because it’s an unsecured loan, borrowers will contend with higher interest rates. However, the enormous advantage of unsecured loans is the immediate, same-day loan release once you fulfill all requirements. Truthfully, this is similar to payday services.

2. Credit Cards

You’ll need to have a high credit rating, pass all bank credit investigations, and fulfill all requirements before you can own a credit card. While the online application method has made it convenient for many borrowers or applicants, the approval process will take time.

However, after the cumbersome process, you won’t need to go through lenders to take out a loan. You can have retailers swipe your card and automatically process your installation payments, defined by the credit card’s imposed limit.

Advantages Disadvantages
1. Immediate Access

Credit card owners have immediate access to a tremendous amount of money in a short timespan. Plus, you can use installation payment services with 0% interest with select merchants. While most preferred merchants offer 0% interest only for 12-month installations, it’s still a great money and time-saving way to pay for products you want or need.
1. Requires Great Credit Scores

You’ll need to have an excellent credit rating to use a credit card. Additionally, banks will initiate credit investigators to examine your property ownership, financial background, employment, and more.
2. Revolving Credit

Once you’ve paid all your debt in full, you can repeat the borrowing process. Additionally, banks evaluate your credit card usage and maintenance. If they see you as a viable and responsible borrower, you can request them to increase your revolving credit limits too.
2. Can Instigate a Cycle of Debt

Borrowing is convenient. Convenience is addictive, especially if you have knowledge you can use an enormous amount of cash with the least amount of time possible. Borrowers who lack control and responsibility can max out their cards and send themselves spiraling into deep debt because of its high interest rates.

Here’s a quick summary of different pros and cons you get from payday loans, personal loans, and credit cards to help you make the best decision.

  Payday Loans Personal Loans Credit Cards
Pros • Fast Approval Rate
• Emergency Medical Financing
• Numerous Dependable Moneylenders
• Has Minimal Requirements
• Negligible Credit Score Ratings
• Higher Available Loan Amounts
• Accessible Through Licensed Moneylenders
• Immediate Access
• Revolving Credit
Cons • Limited Available Loan Products
• High Interest Rates
• Can Start a Cycle of Debt If Left Unattended
• Targets Low-Income Singaporeans and Foreigners
• Access to Your Bank Account
• It’s Still an Unsecured Loan
• Noticeably Higher Interest Rates Than Payday Loans
• Requires Great Credit Scores
• Can Instigate a Cycle of Debt

Choosing the Right Financing Option

Payday financing can only give you an amount equivalent to your next paycheck. 

On the other hand, personal loans can give you up to six months of your income in advance plus an extended loan term, allowing you payment flexibility with virtually the same terms and conditions. Credit cards are convenient but only accessible if you have an excellent credit rating.

Therefore, if you need emergency cash with adequate amounts, use payday financing. If your emergency requires a higher amount, personal loans can work.

Cards are mostly retail-oriented. While helpful, their credit limits are often equivalent to one month of your pay, making them more of a dire solution and last resort.

Singapore’s Trustworthy Licensed Moneylenders Have Fully Regulated Activities

Many look at payday financing products as predatory. However, in Singapore, all lending activities by licensed moneylenders have heavy regulation. You can trust them to give you a fair chance to borrow and pay back your financing.If you need additional information about Singapore’s best payday services, compare them through Moneylender Review‘s selections.