One of the most common types of loans offered by banks and licensed moneylenders is a payday loan. This type of loan is commonly availed by employees who want to get a cash advance on their salary. However, if you have not heard of a payday loan, then you may be wondering what a payday loan is. Why do borrowers avail for a payday loan? Do you need to pledge an asset for a payday loan? Well, do not worry as some borrowers may also have the same questions.
If you are interested in availing for a payday loan, then you need to know few things. Thus, here are the common questions about payday loans and their answers.
1. What is a payday loan?
First things first, a payday loan is also known as a salary loan, cash advance loan, or a payroll loan. Most of the time, this type of loan is a short-term loan and an unsecured one. Borrowers pay in instalments, and the payment is due every payday until full payment.
2. What is the purpose of a payday loan?
Payday loans have numerous purposes like medical emergencies, vacations, education, house renovations, or repair, and among others.
3. Can licensed moneylenders grant a payday loan online?
No, licensed moneylenders cannot grant your payday loan online. Most licensed moneylenders have a website that allows you to send an online application, but this is only a preliminary step to let the moneylender know whether you are eligible for the loan or not. If you are eligible, then the moneylender will ask you to bring the required documents to their office, where an additional assessment will take place.
4. How much can you borrow for a payday loan?
Being an unsecured loan, the amount you can borrow from a licensed moneylender will depend on your annual income. On the website of Singapore’s Ministry of Law, there is a guide as to how much clients can borrow for unsecured loans like payday loans. For example, if you are a foreigner working in Singapore, and you have an annual income of less than $10,000, then the maximum amount you can borrow is $500.
5. Do you need collateral for a payday loan?
Payday loans, being unsecured loans, do not need collateral. However, it will still depend on the practice of the bank or moneylender.
6. Do you need to have a good credit score to avail for a payday loan?
This question will depend on the financial institution. Banks may require the borrower to have a good credit standing to be eligible for a payday loan. However, most licensed moneylenders only require the borrower to have stable employment and income.
7. Where can you avail for a payday loan?
Banks and most licensed moneylenders offer a payday loan. If you are looking to make a transaction with a licensed moneylender, then you should verify the license of the moneylender. Check the license number, certification, and permits of the moneylender to establish legitimacy.
When looking for a licensed moneylender, you should always compare different licensed moneylenders. You should choose one that has favourable terms and conditions, and has flexible payment terms you can easily meet. Never make a transaction with a loan shark or an unlicensed moneylender.
8. How fast can a licensed moneylender process a payday loan?
If you are eligible and have the required documents for a payday loan, the moneylender can grant your loan within an hour. However, the duration of the process will depend on other factors like the completeness of requirements.
9. Do payday loans have a high interest rate?
The interest rate will depend on the financial institution. For moneylenders, the maximum interest rate they can charge is 4% per month. The cap applies whether the borrower applied for a secured loan or an unsecured loan, and the cap also applies regardless of the borrower’s income.
10. What if you are late in repaying a payday loan?
In cases of late repayments, licensed moneylenders can charge interest. However, the interest rate for late repayment should not exceed 4% per month for each month the borrower is late in repaying the loan. The interest rate on late repayments should only apply to the amount of instalment that the borrower repaid late. Also, licensed moneylenders can charge a late penalty fee of not more than $60 for each month of late repayment.
11. Is there an administrative fee for payday loans?
When a licensed moneylender grants a borrower’s loan, they can charge an administrative fee not exceeding 10% of the principal amount of the granted loan. Be careful of moneylenders who ask you to pay an upfront fee before they decide to grant your loan.
12. What will happen if you disregard your payments?
When a bank or a licensed moneylender grants your loan, you must repay the loan according to the agreed repayment schedule. Default on repayments will not only cause your loan to generate more penalty fees, but it can also lead to legal issues. The bank or licensed moneylender may decide to take this issue to court.
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