Falling behind on your bills or struggling to make ends meet is stressful and frustrating. Some may feel ashamed or embarrassed, which makes it hard for them to seek help.
Others become depressed when life strikes them hard. Some may fall for scams when trying to get a quick loan out of desperation.
Unfortunately, loan sharks charge exorbitant interest rates. The good news is that several options are available to help you get your finances back on track.
For instance, a short-term loan can help you out of your misery. In this article, we’ll tell you what is a short term loan and how to apply for it.
What Is A Short Term Loan?
As its name suggests, it is a short-term financial transaction in which money is borrowed from one party and repaid with interest. Short-term loans provide immediate financial assistance when needed.
They function like long-term and medium-term loans. The only difference is that borrowers have to pay back their loans in a shorter period – often in a year or two.
Usually, short-term loans are quick and straightforward to obtain, and depending on the lender’s policies, the entire process could take hours.
Short-term loans are versatile and adaptable. You can select the loan amount and repayment period to suit your needs.
Types Of Short-Term Loans
With so many loan options available, it can be challenging to determine the best one for you. If you need a quick financial solution, here are some types of short-term loans to consider.
1. Payday Loan
Payday loans are ideal for those who have a steady job but need a small amount of money to tide over an emergency. These loans are straightforward, simple to apply, and do not require a credit check or financial history.
However, they have the highest interest rates of any short-term loan. Hence, you must repay the loan in full when you receive your salary.
If you fail to repay the loan on time, your credit score might suffer.
2. Invoice Financing
This is an excellent option for businesses that require funds quickly. This type of loan allows you to borrow against your invoices. It has lower interest rates than other loans, but you must complete the necessary paperwork.
You can use invoice financing to improve your working capital or purchase new equipment.
3. Merchant Cash Advance
You can also apply for a Merchant Cash Advance (MCA) based on future debit or credit card profits. In a MCA, a short-term loan by a lender is given in exchange for business credit card income.
The main benefit is that the approval period is concise, and the process is fairly straightforward.
A MCA can be approved in as quickly as 24 hours, while a traditional loan application can take weeks or months if you have bad credit or no collateral to pledge.
But a MCA’s interest rate is significantly higher than other types of loans.
4. Lines Of Credit
You can borrow any amount of money with lines of credit, which function like credit cards but at a much lower interest rate.
As long as your credit line is open, you can borrow, repay, and apply for new loans for a short term again. Interest is charged on what you used out of an allocated limit.
5. Installment Loans
Just like how a payday loan is paid after you receive your paycheck, an installment loan is paid every month with regular, scheduled payments.
While installment loans are useful for paying off mortgages and purchasing a dream car, they can also help you improve your credit score if you make payment on time every month.
Alternatives To Short-Term Loans
If you find taking loans on a short-term basis too risky or expensive, these options may help you manage your finances better.
Overdraft
This is a great way to get out of a financial bind. It allows you to access funds in your account but has some drawbacks.
You must pay interest on the amount borrowed, and the bank may charge you for conducting too many transactions if it deems you have used this service in excess.
0% Credit Card
A credit card can be a way to borrow money if you have good credit. The interest rate is typically lower than an overdraft. You can find credit cards with 0% APR for up to 18 months.
Guarantor Loan
This is a personal loan approved based on the creditworthiness of a friend or family member. This loan, also known as a co-signer loan, is a good option if you have bad credit.
If you opt for this, ensure that you know the co-signer personally, who has to repay the loan on your behalf if you fail to pay the loan.
Where To Apply For Short-Term Loans
If you want loans for short-term in Singapore, you can compare rates with various lenders, including banks and licensed money lenders.
Some lending companies offer excellent short-term loan packages even though they have higher interest rates. Here are some sources for a short-term loan in Singapore.
Banks
Those looking for short-term loans can consider banks. They typically provide manageable interest rates that range from 3-6% per year.
Banks are typically more traditional and stricter in their approach than different types of lenders. Hence, they may not be suitable for those looking to borrow small sums or who require flexible repayment terms.
Licensed Money Lenders
The Ministry of Law (MinLaw) regulates all licensed money lenders in Singapore. On MinLaw’s website, you can find a list of licensed money lenders such as CreditMaster.
Working with licensed lenders means that you can be quite sure such lenders will adhere to strict rules and regulations when lending money. This protects the interests of borrowers.
Always choose a licensed money lender that has a reputation of dependability and trustworthiness.
Private Lenders
Singapore has several private lenders that provide short-term loans and personal loans. These are individuals or businesses with excess funds that lend out money but do not work in the financial industry.
While some private lenders have borrowing limits, they are usually more flexible than banks. The most significant benefit of using a private lender is its flexibility.
While banks have strict criteria when it comes to lending money, reputable private lenders are more flexible and offer better rates.
How Long Does Approval Take?
When applying for a short-term loan, it’s critical to understand how long it takes to get approved. If you have poor credit, you will most likely need to apply for a small loan or line of credit with a lower interest rate than someone with excellent credit.
Most approvals are given within 24 hours. The approval time depends on the:
- Lender and its approval criteria
- Processing time of the lender
How To Apply
You can apply for a loan online or in person at a local lender. The application process is quick and easy, and often done using Singpass. You must give your name, address, and phone number.
The lender will inquire about your employment and income, so include a copy of your most recent payslip or bank statement. Other requirements include your NRIC, income tax statements, and CPF contributions.
Once your application is complete, the lender will make an initial decision. Based on your application and whether you provided all the required information, this could take a few minutes to hours.
Foreigners living in Singapore can qualify for a short-term loan. Nevertheless, they should be earning over $30,000 per month and living in the country.
Pros And Cons Of Short-Term Loans
There are two sides to every coin. While short-term loans have many advantages, there are some disadvantages to consider before applying.
Pros
- Quick approvals
- Less paperwork
- Fast and flexible repayment plans
- Relaxed eligibility requirements
Cons
- High probability of damaging your credit score
- You may get stuck in an endless debt cycle
- High interest rate
- More risks
A Short-Term Loan Is Good When Used Wisely
So now you know what is a short term loan. Suffice to say loans no longer take forever to get approved.
Some short-term loans, especially those from licensed money lenders, do not involve credit checks or much paperwork. But steer clear of loan sharks by only applying for short-term loans with reliable financiers.
The idea is to get out of a financial fix but not to plunge yourself into harrowing circumstances or even more debt.
CreditMaster is here for you through tough financial times. Call our experts at +65 6748 1338 or email feedback@creditmaster.sg to get tips on the best short-term loan package for you.
You can also contact us now or apply for a loan today.
