What Is Good About A Short Term Loan?

Written by Shannon Wong on November 10, 2022

If you need quick cash for urgent personal or business matters, a short-term loan can be an option.

But what is a short term loan? 

Short-term loans are popular in Singapore because they are easy to obtain without having to pledge collateral. 

However, they do have high interest rates and your debt can rise quickly before you know it. 

If you’re considering taking a short-term loan in Singapore, this article covers all you need to know about a short-term loan. 

What Is A Short Term Loan? 

Short-term loans are unsecured loans, meaning they don’t require collateral before the loan is granted. 

Such loans usually have shorter repayment periods – six months to one year. 

Repayment for the loan principal is done monthly, along with the interest, which is higher than that of conventional long-term loans. 

The main reason why the interest rate for short-term loans is higher is because of their shorter repayment period.

If you’re in a temporary cash crunch and need funds urgently, a short-term loan might just be what you need. 

But before you take out that loan, it’s advisable to weigh the pros and cons.

Pros And Cons Of Short-Term Loans


  1. Ease Of Access

It is easy to obtain loans for the short term from reputable lenders in Singapore. Banks, licensed money lenders, and private funders all offer short-term loans. 

In addition, most of these lenders have websites where borrowers can fill up and submit a loan application online. This reduces paperwork and speeds up the process.

  • Less Stringent Requirements

While long-term traditional loans require a high credit score, short-term loans do not, especially when you are borrowing from a licensed money lender. 

So even if you have a low credit score, there is a fair chance your loan application might be approved.

  1. Faster Approval

The less stringent requirements allow short-term loans to have a faster approval rate. Your loan can be granted within 30 minutes to seven days, depending on the loan provider. 

  • Can Improve Your Credit Score

Since short-term loans have a short repayment period, you can pay back your debt on time. 

Paying as when the installment is due helps to boost your credit score and makes it easier for you to be granted a long-term loan if you need one in the future.

  1. Flexible Repayment Term

With a short-term loan, you have a more flexible repayment structure. You can repay the loan in a lump sum, or make weekly, bi-weekly, or monthly payments.

  1. Save On Interest

The longer you owe a debt, the more interest you have to pay. Since short-term loans are paid off quickly, you can save on the monthly interest for a traditional loan, even though the interest rate is higher. 


  1. Higher Interest Rate

As mentioned, the interest rate for short-term loans is higher because of the shorter repayment period, and lack of collateral. In fact, they are considered high-risk loans.

  1. Small Loan Amounts

You can only obtain small amounts relative to long-term loans. This is because of the risk involved and the short repayment period. 

If you need a bigger loan, you might want to consider taking out a traditional loan.

  1. Higher Chance Of Defaulting 

The low amount and shorter repayment period give room for some borrowers to be complacent and default on their payments. 

However, this will incur late payment fees, which means more debt.

  1. Opportunity For Loan Sharks

Loan sharks are illegal money lenders. They charge pretty high interest rates and fees, and may harass you when you default on your loan payment. 

The ease of applying for short-term loans online can make borrowers vulnerable to loan sharks, or even loan scams. Only borrow from licensed money lenders.

Types Of Short-Term Loans

The following are the types of short-term loans available to borrowers.

Payday Loans

This is a loan taken out against payday. With this loan type, you are likely to get credit  even if you have a poor credit score.

Payday loans have higher interest rates and are expected to be paid out in a lump sum – interest and loan principal combined.

When borrowing against your payday, ensure you borrow a reasonable amount, so you are not left with nothing after settling the loan.

Line Of Credit 

A line of credit allows business owners to take out short-term loans against their credit limit. Think of it as a business credit card. 

For instance, if your credit limit is $30,000, you can take out a couple of short-term loans until you reach $30,000.

The good thing about a line of credit is that you only pay interest on the amount you borrow – you aren’t charged interest on the balance.

Invoice Financing

This is a short-term loan advanced to business owners against unpaid invoices from customers. 

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

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

Merchant Cash Advance

A business experiencing a shortage in cashflow might take out a loan, and repay it based on sales made in the future. 

Once a purchase is made, the lender takes out a portion as repayment for the loan.

Keep in mind that this type of loan has relatively high interest rates, and hinges on future sales. 

Only businesses that are growing or have the potential for growth should apply for this. 

Bridging Loans

Bridging loans are a type of short-term loan that allows individuals to finance their new home or property while waiting for the sales proceeds from the old home or property. 

Let’s say you need funds to pay for the downpayment of your new home, but your old home isn’t sold yet. You can get this loan to bridge the gap, and pay back the loan once your old home is sold.

The interest rate for bridge loans is higher than other short-term loans, and their repayment period is shorter – usually a maximum of six months.

Alternatives To Short-Term Loans 

You can try these options before committing to a short-term loan. 

  1. Borrow From Friends And Family

Borrowing from friends and family can be an excellent alternative to short-term loans. You may get no or low interest rates, as well as a longer repayment period. 

However, it’s advised that the terms of the loan are put in a formal agreement to avoid future problems.

  1. Sell Items

If you have items that are old or new and in good condition, you can sell these off for cash. Sites like Carousell can help you sell off your items. 

  1. Ask For A Payday Advance

Your employer might be willing to give you your salary in advance. Make a request, and see what payday advance options are available, if any.

Where To Apply For Short-Term Loans

There are three major short-term loan providers. They are licensed money lenders, banks, and private funders.

Licensed Money Lenders

They provide short-term loans at a higher interest rate compared to banks and don’t focus on credit scores, but on your income and ability to pay. 

Their loan approval rate is faster compared to banks.

How much you can borrow depends on your annual income, and citizenship status. The table below gives a summary.

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

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.

Other fees they can charge are: 

  • 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

When borrowing from money lenders, ensure the money lender is licensed to avoid loan scams. The Ministry of Law has compiled a list of licensed money lenders in Singapore. Only deal with money lenders on that list.


Banks also provide short-term loans to borrowers. They offer interest rates that are less expensive compared to money lenders.

However, they focus on your credit score, which may lower your chances of approval.

Their approval speed is slow compared to money lenders, making them a wrong fit if you need a same-day loan.

Private Funders

Such funders advance short-term loans to investors and businesses. They 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. Note that they may require you to provide collateral.

How Long Does Approval Take?

Approval for a short-term loan can range from 30 minutes to seven days, depending on the loan provider. Licensed money lenders have a faster approval speed compared to banks.

With money lenders, it’s typical to have your loan processed and approved within 30 minutes to 24 hours. Banks can take two to seven days for processing and approval.

If you’re in need of urgent cash, money lenders might be the best fit, so you can address your needs quickly.

How To Apply 

Applying for a short-term loan is easy. While each loan provider will have its processes, the following checklist gives you an idea of the steps to take.

  1. Apply online or visit the physical address of the loan provider.
  2. Submit your loan application and relevant documents such as your NRIC, and recent payslips.
  3. Go for an interview if required.
  4. Wait for approval.

A Short-Term Loan Could Help You

Now that you know what is a short term loan, think about whether you should apply for one. 

After all, we all need urgent cash at different points in life for emergency situations. 

1AP Capital has made it easy for you to get fast loans at some of the best interest rates.

Get started right away by applying for a loan online, or contact a loan expert about your needs at +65 6533 5335.

Continue Reading

Should I Lend A Personal Loan To My Friends And Relatives?

June 10, 2024 Read

Top 10 Loans You Can Apply From Licensed Money Lenders In Singapore

June 6, 2024 Read

24-Hour Money Lenders In Singapore: Where To Find Them And What To Take Note Of

May 26, 2024 Read