What Is Good About A Short Term Loan?

If you are in a cash crunch, a quick loan may come in handy. Perhaps you need to repair leaky faucets, or a sudden dental emergency has cropped up that could set you back a few hundred dollars.

Payday is nowhere in sight, and forking out money from your savings will mess up your cashflow. For such situations, you can consider applying for a short-term loan.

This article will explain what is a short term loan is in Singapore, why you should consider it, and how to apply for one.

What Is A Short Term Loan?

A short-term loan is a relatively small loan – ranging anywhere from $500 to $5,000 – that you can easily acquire, to be typically paid back within six months to a year’s time.

It is an unsecured loan, meaning that you do not need to pledge any asset as collateral.

If you meet the eligibility criteria, a short-term loan is usually granted swiftly, often with a few hours to a day.

A short-term loan is also called a payday loan, fast cash loan, payroll advance, or cash advance.

Types Of Short-Term Loans

There are a number of short-term loans offered by banks and licensed money lenders. To understand the loan tenure, and the interest rates of each, you must research all types of short-term loans and choose the one that is best suited to your financial situation and needs.

Here are some common types of short-term loans:

Line Of Credit

A line of credit is a specific type of short-term loan that is similar to using a credit card. It has an approved credit limit, and you can simply tap into the line of credit and use it as you need.

It usually has a lower interest rate than most credit cards, and is also more flexible in terms of repayment. It is perhaps the most flexible type of short-term loan.

Payday Loan

This is one of the easiest and quickest of short-term loans to obtain. It is ideal when you find yourself in an emergency, and need some quick cash.

This type of loan, although acquired quickly, has high interest rates and must be repaid in a lump sum. That means that the total amount loaned, as well as the interest, must be paid back at one go. So only borrow what you absolutely need.

Merchant Cash Advance

As its name suggests, a merchant cash advance is a type of financing based on the future credit card sales of a business.

Once a purchase is made, the lender deducts a portion of the sales as repayment for the loan.

This type of loan has relatively high interest rates, and hinges on future sales.

Hence, only businesses that are growing or have the potential for growth should apply for this.

Invoice Financing

This is a type of financing that uses unpaid invoices from customers to give advances to businesses.

Interest is charged accordingly based on the number of weeks the invoice is outstanding.

Once the invoice has been paid, the lender deducts the loan principal and interest, and gives the balance, if any, to the merchant.

Benefits And Drawbacks Of A Short-Term Loan

A short-term loan has its fair share of benefits and drawbacks, depending on your financial situation and credit score.

A short-term loan is designed to be used specifically for emergency situations, where a little amount of money granted swiftly can go a long way and get you out of a tough situation.

Here are some of the pros and cons of acquiring a short-term loan:


Less Interest Paid

The first thing to note about what is a short term loan is that it requires you to pay a comparatively less interest than a long-term loan.

Which means that because the loan is acquired for the short-term, the total amount that you pay overall for interest would be significantly lower than the amount you have to pay for a long-term loan.

Quickly Granted

As mentioned, a short-term loan is especially catered to fulfil your emergencies and urgent needs. This means that it has fast approval rates, and can be granted almost instantly if you meet the requirements.

High Approval Rates

There are not many requirements when it comes to getting a short-term loan. As such, short-term loans can be the best option for individuals and small businesses that need a small amount of cash for assistance in emergencies or their day-to-day operations.

They Are Flexible

A short-term loan is also highly flexible as it can be used for almost anything. You can discuss the loan installments and loan tenure with your lender. This in turn allows you more flexibility in your cashflow.

Can Improve Your Credit Score

If you repay all the installments of your short-term loan on time, this can improve your credit score over time. With a better credit score, you will be able to borrow more in future.


Limited Loan Amount

A short-term loan limits the amount of money that you can borrow at one time. This is because you are required to pay it all back within a short span of time.

Higher Interest Rate

While you will pay less interest overall, the interest rate for short-term loans is higher because of the shorter repayment period, and lack of collateral. This is why they are considered high-risk loans.

Risk Of Increased Debt If Payment Is Late

While you may pay less overall interest for a short-term loan compared to a long-term loan, this is only true if you pay back the loan installments on time.

But if you are complacent and fail to do so, the interest and late fees will add up quickly. You may end up with a larger debt than you had planned for.

Therefore, it is imperative that you only apply for a loan amount that you absolutely need. You should then draw up a budget on how you plan to utilise it to avoid wasting the loaned money.

Alternatives To Short-Term Loans

Given all its benefits and drawbacks, some people fear taking out loans unless it is absolutely unavoidable.

Indeed, there are other viable options that can be utilised instead of resorting to acquiring a short-term loan.

Asking your friends and family for financial assistance could prove fruitful. Many people are quick to lend their loved ones some amount of money in times of crisis.

But it highly recommended that you put everything on paper, and chalk up a formal agreement.

Community resources could also be a great help. Always check with your community centre if it offers financial assistance and small loans before you explore other options.

Your employer may also be of help. During financial emergencies, you can always ask for a payday advance.

Where To Apply For Short-Term Loans

Licensed Money Lenders

Licensed money lenders are a safe and reliable resource for acquiring short-term loans.

For a slightly higher interest rate of up to 4% per month, a licensed money lender can provide you loan amounts of $500 to six times your monthly income, depending on your citizenship status and your annual income.

Annual Income Of BorrowerSingapore Citizen Or Permanent ResidentForeigner Residing In Singapore
Less than $10,000$3,000$500
At least $10,000 but less than $20,000$3,000$3,000
At least $20,000Up to 6x monthly incomeUp to 6x monthly income

It is important that you check for a licensed money lender’s licence and authenticity from the Registry of Moneylenders’ list of licensed money lenders in Singapore before you sign on a loan contract with a money lender.

The list is available online and updated regularly.

Note that the maximum interest rate licensed money lenders can charge – regardless of the amount borrowed – is 4%. They can also charge late interest capped at 4% if you fail to pay your loan as when due.

These fees may also apply:

  • Administrative fee capped at 10%
  • Late payment fees for each month you default capped at $60
  • Legal fees if they used the services of the court to recover the debt


Banks are a safe and traditional route for loans. Banks are a reliable source of short-term loans with moderate interest rates, and offer different types of short-term loans best suited to your needs.

But they are often stringent with their policies, and need a good credit score before approving your loan application. Hence, they may not be as quick and efficient as a licensed money lender when it comes to handing out some quick cash.

Private Funders

These funders grant short-term loans to investors and businesses, but are excluded from holding a license under the Moneylenders Act.

To qualify for a loan as an individual, you must:

  • Have net personal assets of $2 million in value, of which the value of your primary residence must not exceed $1 million
  • Have net assets exceeding $1 million
  • Have made at least $300,000 in the preceding 12 months

To qualify for a loan as a business, you must have net assets exceeding $10 million. You may need to provide collateral.

Eligibility And Required Documents

In order to qualify for a short-term loan from a licensed money lender or bank, you must provide the following:

  • NRIC or passport
  • Proof of income
  • Bank statements
  • Payslips of the past three months
  • Proof of residency (for foreigners residing in Singapore)

Most short-term loan providers require that you have a steady source of income, are residing in Singapore legally, and are at least 21 years old.

Banks may require more supporting documents such as your credit score and other essential proofs before approving your loan.

Most banks need the annual income of a Singaporean and permanent resident, or foreigner residing in Singapore to be at least $30,000 and $40,000 respectively.

How To Apply

Now that you know what is a short term loan, you can proceed to collect all essential documents and submit your application to a bank or licensed money lender online or in person before signing on a loan contract.

With licensed money lenders, you can go through the entire process online and get approved within a few hours.

But it is crucial that you have a face-to-face meeting with the licensed money lender as you sign the contract to verify your identity and check for its licence.

Licensed and highly efficient money lenders, such as Horison Credit, can take you from loan application, document verification, and approval within a few hours.

Contact us now or apply for a loan today to enjoy instant short-term loans with easy repayment terms.


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