Do payday loans affect your credit score in Singapore?

When you’re in a bind and need money fast, a payday loan might seem like the perfect option. But what happens if you can’t pay it back on time? Do payday loans affect your credit score? And is there anything else you should know before taking out one of these short-term loans? Keep reading to find out.

What is a payday loan and how does it work?

A payday loan is a type of short-term loan typically used to cover unexpected expenses or to bridge the gap between paychecks. The loan is typically repayable on the borrower’s next payday, although some lenders may allow for a longer repayment period.

How does a payday loan work?

One example is that the borrower typically writes a post-dated check for the full amount of the loan, plus any fees, and the lender holds onto the check until the borrower’s next payday. On that day, the borrower either cashes the check or rollovers the loan into a new one. Payday loans from licensed moneylenders can be very expensive, with high interest rates (up to 4% per month as of 1 October 2015) and fees (up to $60 for each month of late repayment), so they should only be used as a last resort. Borrowers who are unable to repay their loans may find themselves caught in a cycle of debt that can be difficult to break free from.

Do payday loans affect your credit score and credit history?

At JD Credit, although our payday loans do not affect your credit score when you take them out, late repayments on these loans can hurt your credit score in the future. This is because late repayments are one of the factors that lenders and licensed moneylenders will look at when they are determining your creditworthiness. As a result, if you are looking to take out a payday loan, it is important to make sure that you will be able to repay it on time. If you are unsure about whether or not you will be able to repay the loan, you may want to consider alternative options, such as borrowing from a friend or family member or a pawn shop. Payday loans can be helpful in times of financial need, but it is important to understand the potential consequences of late repayment before taking one out.

Questions to ask before taking out a payday loan

Before taking out a payday loan, there are a few important questions you should ask yourself. First, do you really need the money? Payday loans are typically very high interest, so it’s important to make sure you only borrow what you absolutely need. Second, can you afford to repay the loan? Payday loans typically have to be repaid in full within a relatively short period of time, so you’ll need to make sure you can afford the payments. Third, what are the terms and conditions of the loan? It’s important to understand all the fees and charges associated with a payday loan before you agree to it. Lastly, where will you get the money to repay the loan? You’ll need to make sure you have a plan for repayment before you take out the loan. Asking these questions beforehand can help you avoid getting into financial trouble down the road.

Alternatives to payday loans for people with bad credit

For people with bad credit in Singapore, finding a loan can be difficult. Traditional personal banking lenders (eg. POSB, OCBC, UOB) are often unwilling to work with people with poor credit, and as a result, many people turn to payday loans. However, payday loans can be incredibly expensive, and they often trap borrowers in a cycle of debt. If you’re looking for alternatives to payday loans, here are two other options to consider.

Friends or family

If you have someone who is able and willing to help you out financially, this can be a great option. Just be sure to draw up a contract so that there is no confusion about the terms of the loan.

Pawn shops

Pawn shops will give you cash for your belongings, but you’ll need to pay back the loan plus interest within a certain timeframe. This can be a good option if you have something of value that you can use as collateral.

Tips for improving your credit score over time

Your credit score is a key factor in determining your financial health. A high credit score can mean lower interest rates and better lending terms, while a low score can make it difficult to get approved for loans or credit cards. If you’re looking to improve your credit score, there are a few things you can do. First, make sure you pay all of your bills on time. This includes both credit card and bills. Late payments can have a major impact on your score, so it’s important to stay on top of them. Second, keep your balances low. Using too much of your available credit can hurt your score, so we’d recommend that it’s best to keep your balances below 30% of your limit. Third, don’t open new lines of credit unless you absolutely need to. Every time you open a new account, it results in a hard inquiry on your report, which can temporarily lower your score. If you’re diligent about making payments and keeping balances low, you should see your credit score gradually improve over time.

Feeling Overwhelmed By Financial Obligations?

Did you know that one in three Singaporeans are struggling with their personal finances and housing loans? According to a 2020 survey by OCBC, many are struggling to keep up with housing loan payments. This is contributed by a lack of financial literacy and education. Thankfully, there are organisations like Credit Counselling Singapore that offer free financial literacy programmes to help people get back on track financially. These programmes teach participants about budgeting, saving, investing, and other important money management skills.

Seek Help From Credit Counselling Singapore

Credit Counselling Singapore (CCS) is a non-profit organisation and a registered charity. As a trusted Credit Counselling Social Service Agency, they have helped over 35,000 individuals address their unsecured debt problems through education, credit counselling and facilitated debt restructuring since 2004. CCS and its staff are driven by their collective social purpose to promote the responsible use of credit and provide help to debt-distressed individuals, so that they can move ahead in life with peace of mind.

Speak with CCS as they can assist and facilitate repayment arrangements on behalf of suitable debt-distressed borrowers under the Moneylender Debt Management Programme to enable them to repay unsecured debts with licensed moneylenders in full.

Final Words

While payday loans can be helpful in a bind, it’s important to understand all of the implications before taking one out. We hope this article has helped you better understand how payday loans work and what to consider before borrowing money. If you’re looking for a short-term solution and have poor credit, JD Credit may be able to help. We offer payday loans with minimal credit check required so you can get the money you need without waiting. Contact us today to learn more!