Payday Loans: Why And When Are They Useful For You

Consolidation Loans Singapore, Debt Consolidation Loan Singapore

Payday loans are commonly referred to as short-term loans and an alternative to monthly instalment loans in Singapore. As the name suggests, payday loans are meant to help you tide over, just until you receive your next paycheck and have the funds to pay back the loaned sum.

If you are considering taking up a payday loan in Singapore, here is a quick guide to understanding the loan and what to keep in mind to make an informed decision.

Payday loans vs payday advances

Let’s use payday advances to understand payday loans. While both relate to the date on which wages are paid to an employee, that is where the similarities end.

A payday advance is a benefit provided by some companies, whereby you can borrow a portion of your next pay before the usual payday. These are usually designed to help employees get through tough times without taking on debt. On the other hand, payday loans are short-term, high-interest loans that licensed moneylenders offer.

How do payday loans work

Most of the time, taking up a payday loan starts with filling up an application with the loan provider. If your loan amount is approved, you can receive cash upfront. Payment for the loan would be due on the borrowers next payday. And fret not, payday loans are relatively easy to attain. You would only need to ensure that your income is sufficient to repay the amount and that you’re not a defaulter in loan payment.

The interest rates used for payday loans would be based on the annual percentage rate (APR), which is also used for credit cards and mortgages. While the interest rate charged depends on your moneylender, the maximum nominal interest rate charged in Singapore is 4%.

Another benefit to payday loans is that the computation of interest charged is based on the principal amount that has not been paid off. So, for instance, if a loan of $500 has been taken up, and you have repaid $200, only the remaining $300 would be liable to any future interest computation.

Common reasons why people take up payday loans

Since payday loans offer you fast cash, most situations that call for payday loans are usually emergencies. Here are some examples of situations where payday loans are an optimal choice.

1. Medical emergency

In the unfortunate case where a condition that is not covered by your health insurance arises, a payday loan would be helpful. Medical bills can amount to a hefty sum, hence, a payday loan can take care of your bills while you seek treatment as early as possible.

2. Debt consolidation

To help pay off your debt consolidation loans, you can consider taking out a payday loan. In fact, many use payday loans to clear their debts from other sources, especially if the interest level of the payday loan is lower than that of other loans.

3. Improves credit score

Without a good credit score, it might be tough to take up a loan with licensed moneylenders in Singapore. This is where payday loans can lend a hand to those in need of cash, but without a good credit rating.

4. Unexpected debt

Finally, a payday loan is useful when you encounter unexpected debt. And if your emergency fund is running low, it might be tough to repay an unexpected debt that arises. As such, payday loans come in handy to take care of the debt as quickly as possible.


Despite the relatively high interest rates of payday loans, they do come in handy when used right in your debt repayment plans.  But, it is best not to become too reliant on payday loans and other moneylending sources. Instead, view them as steps to take in improving your financial health.

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