Do you have a sudden expense or a financial shortfall that needs to be addressed? If your answer is yes, one of the best options might be going for a cash loan. This is a type of unsecured loan, usually ranging from S$1,000 and S$5,000, that people take out to cover unexpected costs.
The need for fast cash loans has been growing steadily in Singapore following the outbreak of the coronavirus pandemic in 2020. Like other lines of credit, it is crucial to ensure you understand how cash loans work before signing for one. What is the interest rate? What about the repayment period? To help you get a clearer picture of the ins and outs of this financing method, here is a comprehensive guide to cash loans in Singapore.
Cash Loans in Singapore: A Closer Look
A cash loan is a short-term personal instalment type of credit that comes with a fixed interest rate and predetermined tenure, often ranging from a few months to a few years (learn all about cash loan interest rates in Singapore here). When the loan is approved by the selected bank or financial institution, and you sign the agreement, the money is credited into your account in one lump sum, and you are required to repay the loan in scheduled payments.
Because cash loans are unsecured, the high risk associated is compensated with relatively higher interest rates compared to secured loans. This is why you should carefully consider the interest rates of the selected loan before appending your signature. When it comes to the period of repayment, cash loans take a shorter period compared to bigger auto or personal loans.
Cash loans can also take the following forms:
These are loans designed to cushion a person financially until their next payday. When you take a payday loan, the funds are credited into your account, and the repayment is made in full with interest and any other related charges at the end of the month. Notably, it is also possible to borrow payday loans and repay in instalments over a longer period, usually no more than three months.
In Singapore, some people prefer small loans for things such as fixing their cars, home renovation (check our article about in house renovation loans in Singapore), or urgent top-ups to their emergency funds. If you are in business, a small loan can be a good option to cover expenses during the slow months. You might also opt to take out a micro loan to meet the cost of hiring additional workers during the high-peak season.
Micro loans are similar to small loans but differ in the sense that they are far smaller in loan size. Consequently, their repayment period is also shorter, and their interest rates are lower.
The Benefits of Using Cash Loan
Every day, you are faced with important decisions, and most of them come with financial implications. Whether it is buying additional supplies for your business or topping up your emergency fund, an urgent cash loan can come in handy. Here is a closer look at the main advantages of getting a cash loan in SG.
Cash Loans have Relaxed Eligibility
Cash loans in Singapore come with more relaxed eligibility requirements compared to conventional loans. Even with a low credit score, it might still be possible for you to get a loan. However, it is important to note that the interest rate for such a loan is likely going to be higher.
Cash Loans in Singapore are Approved Fast
If you have an emergency, a standard personal loan will be less desirable because it takes a longer time to process. In contrast, cash loans in Singapore are processed quicker, allowing you to conveniently address emergencies that could not wait. For example, if you have a medical emergency and want to access urgent funds, cash loans can be processed within days or even hours.
At the same time, make sure you do your research and identify the banks that are able to clear a cash loan faster to work with.
Short Repayment Period
Once you take a cash loan, you have to make the repayment within the agreed timeframe. It is important to plan out your personal budgeting to ensure you can comfortably repay all the monthly instalments without having it negatively affect your finances. If your income is limited, consider foregoing unnecessary expenses to help you repay the loan.
The documentation requirements for a fast cash loan in Singapore are pretty loose compared to that of major loans. To approve a cash loan, most banks only require a few basic documents, such as bank statements, to determine your repayment capability and residency. However, you should be ready to provide additional documents that might be needed to get the loan approved quickly.
Spend Money on What You Want
Most banks in Singapore are willing to approve cash loans for a wide range of purposes. Unlike mortgages or car loans, which strictly designate where your funds must go, there is little restriction on what you can spend the money from your cash loans on. Of course, it is strongly advised that you stick to the main purpose for which you borrowed the money.
Cash Loans Offer a Reliable Method of Improving Your Credit Score
As cash loans have a short tenure, they present a reliable opportunity to improve your credit score. To calculate your credit score, credit reference agencies check a number of indicators, including your ability to repay the loans on time and credit mix. When you complete the loan repayment without defaulting, your credit score improves.
Things to Consider when Taking Out a Cash Loan in Singapore
With emergency savings for most people in Singapore shrinking fast, especially after the coronavirus pandemic outbreak, some are turning to cash loans to pay for medical bills, cover emergency costs, and consolidate their credit card debts.
Taking out a cash loan is a big financial decision, so it is important to ensure it is a smart one. Here are five crucial things that you need to consider before taking out a cash loan in Singapore.
Why Do You Need the Money?
Knowing the actual reason for borrowing money, to begin with, is one of the most important factors to consider before taking out a cash loan in Singapore. When you take a loan, it can help or hurt you, depending on the way you manage it and your preparedness to repay.
Most people in Singapore use cash loans to meet unexpected costs, such as medical emergencies or to cover financial shortfalls in their businesses. Even with these shortfalls, it is advisable to consider using your emergency fund or savings and only borrow the amount of money you need.
If your reason for taking a cash loan is not an emergency, you should consider waiting and deliberate whether taking out a loan is the best course of action. For example, if you want to buy a new car but your current one is still running smoothly, it might be a good idea to budget for it in the months to come.
The Amount of Money You Can Afford to Borrow and Repay
If you are, in fact, in urgent need of cash, consider how much you can afford and repay. At this point, the term “affordability” can be tricky. Most people consider being able to meet monthly instalments to mean that they can afford it, but it is not always true.
To determine whether or not you can afford a loan, you should check more than just the annual percentage rate (APR). Look at the whole picture and check the total amount payable (TAP), which is the entire amount that you borrow plus the interest at the end of the loan’s life. It also includes additional fees that might be associated with the loan, such as processing fees.
As you factor in the monthly payments, knowing the total amount payable (TAP) makes it easy to explore more loan options. For example, repaying your cash loan in a shorter period, such as six months instead of 18 months, can significantly cut down TAP. If you take a smaller amount and repay fast, your TAP will be even lower.
Your Credit Score
Because cash loans are a type of unsecured loan, banks largely rely on the credit scores of the borrowers to determine their creditworthiness. If a borrower has a high credit score, such as 1850 and above, he/she can typically enjoy lower interest rates. You should request a credit report to confirm your score.
The Terms and Conditions of the Loan
Like other forms of credit in Singapore, cash loans come with their terms and conditions, depending on the bank or financial institution. Before signing the loan, it is crucial to ensure you understand these terms and conditions and how they will impact your financial health. Some key things you should look out for in your terms and conditions include:
1. Annual Percentage Rate (APR)
The annual percentage rate (APR) is the cost that you pay every year for the borrowed cash, including the fees, expressed as a percentage. The APR is preferred when evaluating the cost of the loan because it factors in all the fees included in repaying the loan. Try to go for the cash loan with a lower APR.
2. Loan Processing Fee
This is the fee charged for processing your loan. Although it is more common with mortgages, some banks might still attach it to your cash loan, and it is important to be on the lookout for it. You may want to avoid borrowing from banks with a loan processing fee or negotiate for it to be waived.
3. Pre-payment Penalty
This is a fee that is charged when you repay your fast cash loan earlier than indicated on the loan agreement. Like the loan processing fee, this condition could increase the total cost of your loan. Shop around to see if you can find a cash loan that does not come with a pre-payment penalty.
4. Late Payment Charges
When you take out a cash loan in Singapore, make sure you are mindful of late payments because they attract penalties. Furthermore, paying late is likely to hurt your credit score, which can compromise your ability to borrow money in Singapore in the future. If you know that you may be unable to pay your monthly instalment for any reason, such as because of a salary delay, it is important to talk to the bank and discuss a way forward.
How to Apply for a Cash Loan in Singapore
Now that you know the different types of cash loans and the factors to consider, are you ready to apply? Here are the main steps to follow when applying for a cash loan in Singapore.
1. Identify the Preferred Cash Loan
In Singapore, you can borrow cash loans from loan providers such as banks, financial institutions, virtual banks, and online-based financial institutions. With lendela.com, you can carefully review all the offers you qualify for from different banks and financial institutions before selecting the one that suits you the best.
2. Fill out the Application Form
Get access to multiple cash loan offers by filling out Lendela’s online application form – you should be able to complete the application within minutes. Your application will then be sent to various banks for potential offers for free. At this point, you will also be asked to upload the required documents to your Lendela account (we will inform you about the documents that are required after your application is submitted). The main eligibility requirements for a cash loan include:
You should be between 21-61 years of age.
You should have a minimum monthly income of $1,600.
You should be a salaried Singaporean or a permanent resident.
3. Wait for Loan Approval and Disbursement
If you qualify for a cash loan and have provided all the required documents, the funds will be released into your account as soon as you sign the final agreement with the bank. Remember that the disbursement is subject to final processing and credit checks by the bank. When the money is disbursed, you can go ahead and use the cash as you wish, but do not forget to start your repayment.
With numerous advantages, such as ease of application and short repayment period, cash loans have become the go-to option for people faced with financial challenges. See all your cash loan offers at a glance with Lendela today.