There are a lot of misconceptions about short-term loans. Some people think they are a bad thing, while others believe they are the only way to get out of a tough financial situation.

But what is a short term loan?

In this blog post, we will take a closer look at short-term loans and explore their good and bad aspects. We will also provide advice on choosing the right loan for your needs.

Keep reading below.

What Is A Short Term Loan?

A short-term loan is typically repaid over one year. However, some banks in Singapore extend the tenure for short-term loans to five years.

You can use this type of financing for:

  • Unexpected expenses such as medical bills or car repairs
  • Tiding you over until their next pay cheque arrives.

Short-term loans in Singapore are unsecured, meaning they do not require collateral such as a car or home. As a result, they tend to have higher interest rates than other types of loans.

The maximum sum with loans for the short term is usually $35,000.

Remember: Only take out a short-term loan if you are confident you can repay it within the specified timeframe. Failure to do so could result in late fees and additional charges.

Pros And Cons Of Short-Term Loans

Let’s start with the advantages of short-term loans in Singapore.

  • Your approval will go through quickly because the loan sum is typically low. The result is you can solve your financial problems without any hassle.
  • Short-term loans are cheap. Even if the interest for short-term loans may be higher, the tenure is shorter. Therefore, you will pay interest for just a few months, decreasing the overall loan’s cost.
  • Short terms may be more convenient. You may not be comfortable with being indebted for a long time. Alternatively, your income may fluctuate, meaning you may be unsure of your possibility of repaying a longer loan.
  • You have more flexible repayment terms. Whether you want to pay on monthly installments or disburse the loan in bulk, the best financial institutions in Singapore will support you.

You also have to consider the disadvantages of taking a short-term loan in Singapore:

  • They have higher interest rates because they are riskier than other loans.
  • You get access to a lower overall amount. Therefore, you cannot use these loans to finance a larger purchase such as a property or a car.
  • Your installments may be higher because of the established interest rate.
  • The penalty charges are not kind and can add up quickly if you fail to make timely payments.
  • It’s easier to forego paying a short-term loan. Borrowing less money might make you believe you can always reimburse that amount easily. But that’s not true – penalty fees and instalments snowball. If your income is not fixed, you may default on that loan.
  • Instead of learning to budget your expenses correctly, you may form the habit of taking loans.

Types Of Short-Term Loans

If you decide to take a short-term loan, you must analyse different options. First, find out which type of short-term loan suits your needs best.

Invoice Financing

Invoice financing is best for companies who have sold their products or services, having emitted invoices to their clients.

Instead of waiting for those invoices to be paid, these companies will use them as collateral to obtain a loan. Since this is a secured loan, the interest rates will be low too.

The result is getting sufficient funds for daily expenses (e.g. rent, salaries, equipment repairs) or significant business opportunities.

Payday Loans

These are typically small, less than (or equal to) your monthly net income. You can get one from your employer, a bank, or a licensed money lender.

You will have to repay the borrowed amount by your next salary in a bulk payment. However, the interest rate may be higher than other short-term loans.

Lines Of Credit

A line of credit represents a credit facility that resembles a credit card. Your bank establishes the maximum limit to which you can withdraw money. If you do it, interest charges will start rolling in.

Otherwise, you will have no obligations for the sum you are not actively using.

The advantage of lines of credit is obtaining more money than other short-term financing options.

Merchant Cash Advance

Merchant cash advances are not short-term loans per se but short-term business funding. In this case, your company sells some of its expected sales income, so you can get money now.

This money will keep your operation running or help you seize business opportunities. However, you must wire part of your sales income weekly to your lender.

Bridging Loans

Bridging loans aim to connect the financial gap between two transactions, using the first as collateral. The property bridging loan is a typical example. You can use the bridging loan to pay for the downpayment of your new home.

Emergency Cash Loans

These are best for financial emergencies, such as an unexpected funeral or home pest removal. As such, the principal loan amount will be quite low.

While the advantage is accessing the needed funds quickly, with minimal bureaucracy, the disadvantage lies in higher interest rates. If you fail to repay this loan, your debt can easily snowball.

Alternatives To Short-Term Loans

If for one reason or another, you do not feel comfortable getting a short-term loan, you have a slew of other options:

  • Ask your loved ones for help. They will probably forego interest and offer you more flexibility in repaying the loan. However, some people may feel entitled to intrude in your personal life, snooping on your expenses. Failure to reimburse this loan might also strain your relationship.
  • Use your credit card. Although the interest rate may be lower, and you can get cash faster, using a credit card is not always recommended. First, ensure you can repay the balance and not roll it over for months to come. Otherwise, you may become indebted quickly.
  • Negotiate with your current bank. If you have been a longstanding customer, your bank may approve a larger, longer-term loan.
  • Browse government assistance. The government has many initiatives to help people or businesses in need.
  • Pawn or sell something. This option gives you the cash you need fast, with minimal paperwork and no repercussions on your credit history.

Where To Apply For Short-Term Loans

Short-term loans in Singapore are easy to obtain from:

Licensed Money Lenders

Licensed money lenders offer quick, customised financial help. Their interest rates are a maximum of 4%/month, and they can offer unsecured personal loans up to six times your monthly income.

However, licensed money lenders are faster than banks and focus less on your credit history and nationality. That means you will get your cash quickly.


Banks’ short-term loans have several advantages:

  • Lower interest rate
  • Up to 10 times your monthly income
  • Longer tenures, up to 60 months

However, a bank loan approval may take up to a week until they do all the credit checks. People with lower credit scores will obtain less money and higher interest rates, if at all. Foreigners and people under 21 years old might also not be eligible for short-term loans from the bank.

Credit Unions

These not-for-profit organisations in Singapore offer loans for the short term to their members. They have faster approval times than banks, but sometimes their interest rates can be higher.

How Long Does Approval Take?

Now that you have seen what is a short term loan and where you can get it, let’s see how fast you can access these funds:

  • One business day: At licensed money lenders in Singapore. Some of the most customer-oriented will also approve your request within the hour.
  • Two business days: Credit unions
  • Several days: Some banks in Singapore

How To Apply 

The application process for a short-term loan starts with researching the right:

  • Type of loan
  • Lender

When you compare these options, consider variables such as:

  • Eligibility requirements
  • Maximum sum
  • Tenure length
  • Interest rate
  • Additional charges (penalty fees, processing fees, and more)

Let’s say you’ve found a lender that fits your needs. You can visit their headquarters to submit an in-person application or apply online.

You will need:

  • Proof of identity: NRIC card or passport
  • Proof of income: Three months’ worth of computerised payslips or Notice of Assessment, or bank statement
  • Proof of address: Bills with your name or official letters

Pro tip: Applying online is faster because you can connect with your SingPass and upload the needed data instantly.

After sending the application:

  • Wait for the pre-approval message.
  • Meet with your money lender for due diligence.
  • Sign the contract and collect the cash.

Weigh Your Options 

Short-term loans have many advantages such as convenience, lack of collateral, and minimal paperwork. But not all financing providers are created equal.

At Credit 21, we promise fast approval within the hour, low rates, and no hidden fees. We also offer flexible repayment plans to choose the best schedule for your needs.

We will be by your side throughout the loan with expert advice and customer-oriented support from the first phone call.

Contact us now or apply for a loan today.