GM Creditz Pte Ltd is a licensed moneylender (License No. 102/2020) listed in the Registry of Moneylenders, under the Ministry of Law in Singapore.

Benefits and Drawbacks of Taking Short-Term Loans in Singapore

Short Term Loan

There are a variety of reasons why you could be considering taking out a short-term loan here in Singapore. You can be an individual struggling to make amends meet, or you could have a business opportunity that comes only once in a blue moon yet you lack the funds for it. 

Whatever your reason, discussed below are the top valid points that can encourage you to take out a short-term loan in Singapore.

Benefits of Short-term Loans

The following is a brief list of points that you can consider when deciding whether a short-term loan can help you. If any or all of these points fit your narrative, then getting a short-term loan is likely a favorable option for you

  • Quick Processing of the Application

Unlike traditional loans that may take days or weeks before approval, short-term loans are processed almost immediately. Your application, which can be done in-person or online via various channels, is processed on the same or the next business day. 

  • High Chances of Acceptance With Low Credit Rating

Not only is the processing quick, but there is also a fair chance for your application to get approved. You are not required to have an exemplary credit score to get a short-term loan. As long as you meet the eligibility criteria and have managed to pass the requirements, then your application will most likely get approved.

  • Limited Paperwork Is Required for the Application Process

Unlike traditional loans that demand an extensive list of requirements to be submitted to establish the credibility of the borrower, short-term loans require limited paperwork. As mentioned above, you are not required to have a good credit rating to get approval for a short-term loan. The direct implication is thus not being required to submit more paperwork.

  • Less Interest Is Paid as the Duration of the Loan Is Short

Because of their short tenures, the interest in these types of loans does not pile up. Compared to those loans that take you more than 2 years to pay off, there is a lower total amount of interest added to the loan amount of short-term loans.

  • Do Not Require Collateral

Although some short-term loans may require collateral, in general, it is not a requirement. The approval of these loans is quick, as mentioned previously, and one of the reasons is the lesser paperwork needed. The lender does not need to check on whether or not the collateral is fit for the loan.

  • Help Improve Your Credit Score/rating

Although you do not have to have a good credit score when you are getting a short-term loan, it can help you improve your rating. If you can fulfill your end in repaying the amount you borrowed, a short-term loan helps boost your credit history. 

This means that you can apply for a traditional loan later on, with bigger amounts, as you have proven your credibility as a borrower with the initial short-term loan.

Drawbacks of Short-Term Loans

Like any other loan, however, getting a short-term loan also has its disadvantages. Below are some of these setbacks that you have to closely take into consideration when deciding whether or not to apply for a loan.

  • High-interest Rate 

As is evidenced by the relatively high interest rates of short-term loans compared to traditional loans, these loans demand higher interest rates from their clients. 

The logic behind this is the fact that these policies are mostly unsecured, and the lenders also release funds almost immediately. To compensate for the high-risk that the lender is subjected to, the borrower pays for higher interest rates.

  • The Repayment Cost Is High and Frequent

Consistent with the high-interest rates, repayments are also larger for these loans. Also, as its name implies, you have to repay the loan more frequently as there is a shorter tenure for this loan. This assures the lender that the money they have released to their borrower without much requirement will be compensated for in the shortest amount of time.

  • Penalties for Late Payment Is Expensive

To further assure the lender that the short-term loans they release will be repaid, penalties for these loans can be very extreme. You can easily fall into a debt trap with the system in place when you fail to repay your installments on time. 

This is the reason why many citizens and individuals get intimidated in getting this loan, as the consequences can indeed be drastic. To avoid this, you should plan your finances and scrutinize whether or not getting a short-term loan can help your situation or not. 

Moneylenders can only charge a fee not exceeding $60 for each month of late repayment. 

  • It Is One of the Risky Types of Loans

Because of the little requirements needed to get your application approved for a short-term loan, they are considered risky types of loans. This means that the lender is placing themselves in a position where they lend out money to individuals who may have trouble repaying the borrowed amount.

How Does Short-Term Loan Work?

A short-term loan is any type of loan that gives you quick financial assistance in exchange for higher monthly interest rates and shorter loan tenure. The tenures usually last about a year, although some institutions consider two years to be short as well. 

The institution that lends you the money allows you to borrow a lump sum, that you have to pay-off within a designated short period, with its corresponding interest rate. Unlike traditional loans, repayments for short-term loans are often done weekly.

But, take note that short-term loans, no matter how intimidating their reputation might be, pack a variety of benefits for those who get them.

Types of Short-Term Loans

Short-term loans, like regular loans, also have different types that you can choose from. 

  • Invoice Financing

When a business lends out its services to customers and allows the transaction to proceed via credit, it may soon run out of funds to continue operations. With the promise of the clients repaying what they owe over a certain period, the business can opt to borrow a short-term loan known as invoice financing. 

Here, the unpaid invoices will serve as collateral to the lender. The business will get a certain percentage of the amount due to them and either the lender or themselves collect the money to repay the loan with interest.

  • Payday loans

As an individual, you can also get another short-term loan known as a payday loan. The amount will correspond to a certain portion of your salary. 

You will be asked to write to the bank or your authorized money lender a postdated check which they cash as soon as the funds are available in your account. The repayments should usually be paid within two weeks or on your next payday.

  • Line of Credit

For those who are unsure of how their spending is going to be in the long run, they can open a line of credit account and have the option of a flexible credit system.

 A line of credit works with the lender giving the borrower a certain credit limit that they can spend. The borrower can choose to only spend an amount less than the indicated limit. And, they will only repay that portion spent, along with interest, monthly in installments.

  • Merchant Cash Advance

A business can also opt to borrow a merchant cash advance wherein they receive a certain lump sum in exchange for their future sales. These numbers are predicted via the lender studying the sales and the bank information of the client. 

Most of the time, about 80 to 150% of the projected sales can be borrowed, which is a combination of the business’ sales and perceived account risk. The loan is repaid by either paying a portion of daily sales or by allowing the lender to directly withdraw funds from the bank account via the ACH system.

Where Can You Get Short-Term Loans in Singapore?

Singapore is home to a huge number of financial institutions that you can get a short-term loan from. The following are the three licensed and legal options that you can choose from when getting a loan.

  • Moneylenders

In Singapore, the Ministry of Law has a list of licensed moneylenders that you can choose from when wanting to get a short-term loan. These financial institutions are legal lenders that are subject to the Moneylenders Act. They charge a slightly higher interest rate than traditional lending institutions but have quick and easier application processes. 

  • Banks

Traditionally, you get your loan from banks, and this also applies to when you want to get a short-term loan. Banks have the lowest interest rates in the market, but they require a more extensive list of requirements and stricter eligibility. 

Also, approval may not be as quick, although recent technological advances have made possible the use of mobile and online services when applying for bank loans.

  • Private Funders

You can also choose to try your luck in looking for a private funder for your business venture. With this type of policy, however, you will most likely be required to listen to the opinions of your investor in terms of managing the direction of the business. 

And, it is not easy to look for private entities that will eagerly be on board your project, especially if you do not have the necessary credentials. 

However, this option can be a good opportunity to access bigger funds in a short amount of time for individuals whose business venture has a compelling way to succeed.

How to Choose the Best Short-Term Loan in Singapore

There are plenty of options that you can choose from when you want to get a short-term loan in Singapore. However, you should keep in mind that it may be a challenging road to take. 

You should choose your options properly and then plan a way to ensure that you will be able to repay the loan on time. Otherwise, you might find yourself in deeper trouble than when you first started.If you are interested in getting a short-term loan from a licensed moneylender, you should consider GM Creditz. They are one of the top 10 licensed moneylending institutions, having helped a variety of clients overcome their financial situations.

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