That’s one word no one wants to say. Or hear.
Unfortunately, like an unwanted guest, it shows up at your door when you least expect it to.
In a medical or otherwise unavoidable situation, sometimes there just isn’t enough cash on hand. Maybe you have the required funds, but they are parked in the form of a real estate property with not enough time to liquidate them for immediate disbursement.
What should you do if such a situation arises? For one, take a deep breath! There are several options available to you. They may come with their own caveats, but if fast cash is what you need, this is what you should do.
1. Borrow from family and friends
For all those loud dinners and birthday parties you reluctantly had to sit through, here’s your gift. An SOS call to your trusted family members and friends might help you tackle the crisis. If you have a bad credit score and are unsure of procuring a loan or advance on your credit card, this is your best option.
- You may be able to get an interest-free loan. Even if you have to pay an interest, it may be a reasonable amount, much lower than market rates.
- No complicated contracts, hidden fees or binding deadlines. Since you have a personal equation with your lender, repayment is a much calmer and flexible process.
- There will be no bearing on your credit rating even if you are unable to pay back your loan.
- You risk losing a friend and damaging your relationship with relatives if you do not pay back on time.
- In an informal agreement, there may not be clarity on interest rates and repayment, leading to conflicts.
2. Credit line
Having a line of credit is a valuable asset during an emergency. Here, you have a pre-signed agreement with your bank about withdrawing funds. Unlike a credit card, you have the flexibility to borrow the amount you want and use it only when needed. If you are a first-time user, you could be eligible for a rebate or other attractive offers, so do check this out when you sign up for a line of credit. You are usually offered a credit limit of four times your monthly income, but you should be making at least S$20,000 annually. This works best if you have a steady financial position and are confident of paying back on time.
Withdrawing cash is easy – from the ATM, into your savings account, or a cheque linked to your credit line account. Most banks offer lower interest rates for the first year before doubling it up the following year, so try to pay back at the earliest.
- One benefit of using a credit line is that you don’t have to pay a withdrawal fee. You may have to pay an annual fee of around S$60-80, but even that is waived for the first year or two by most banks.
- Enjoy lower interest rates compared to credit cards. You may be charged around 19% as interest, much lower than what you would pay for a cash advance on your credit card. Some banks offer as low as 9% for the first year and give you an attractive rate of close to 17% for the subsequent year.
- You are charged a daily interest rate. The longer you take to repay, the more debt you accumulate. You might end up with a burdensome figure if you do not meet the repayment deadline.
- The interest rates are variable. IF you miss a payment, you may find yourself laden with a much higher interest rate midway into your loan than when you started out.
3. Cash advance on credit card
You need cash and you need it now. The figure in your savings account is not enough to cover your unexpected expense. You did not pre-sign for a credit line with your bank so you cannot procure funds from there on time. What do you do? Whip out the credit card.
Find out if your credit card allows cash advances. You should also know what your credit limit for a cash advance is. This is usually lesser than your regular credit limit. All you need to do is swipe your card at the ATM and key in the PIN number.
With its high-interest rates and transaction charges, this is not the ideal option to take but in an emergency, this might work for you.
- Quick, easy and convenient access to money.
- No approvals or documentation needed.
- Brace yourself. The average cash advance interest rate in Singapore is around 27-28%, slightly higher than the credit card annual percentage rate (APR).
- On top of the high-interest rate, you will need to pay about $15 or 6% whichever is higher as a cash advance fee at the time of withdrawal.
- Grace period, you ask? No such luck. Interest begins to accumulate as soon you receive the cash.
4. Borrow from money lenders
You don’t have a good credit score. Banks don’t approve your loan applications. You have a credit card, but are wary of taking a cash advance. What can you do if you need immediate cash?
Going to a money lender may be your answer.
You can opt for a secured, unsecured loan, or a payday loan. You can obtain a loan of any amount for secured loans while there are caps on unsecured loans. For instance, you can borrow up to S$3,000 if your annual income is less than S$20,000. If you choose a payday loan, you do not require a collateral and are required to pay back the loan before the next payday.
The process is simple.
Apply for a loan. Most lenders now accept online loan applications. Upload a few documents and you may get the money within 24 hours. The law requires the money lender to explain the fine print to you. Understanding the terms of the contract like interest rates, fee, and repayment schedule are paramount before you sign.
Also, and this cannot be stressed enough, always go to a licensed money lender.
- Easy application process. For online applications, you can get your loan pre-approved with minimal fuss and without needing to go to the lender’s office.
- If you have a poor credit score, you can breathe easy. Many money lenders do not ask for your credit score and offer you a quotation based on your income.
- Thanks to government regulations, you don’t have to worry about the rate of interest shooting up midway through your loan. The maximum rate you can be charged is 4% per month irrespective of your income.
- Picking the right money lender may not be that easy with a plethora of options. There may be imposters claiming to be licensed money lenders who steal your financial information and misuse them. The only way to be sure is to go to the website of the Ministry of Law, Singapore and see the list of money lenders that are licensed to operate.
- Despite the cap of 4% interest per month, you will end up paying almost five times the interest charged by a bank for a personal loan. Add in late fees and other charges and you may end up owing a figure that’s as much as the principal of the loan.
Much before the fancy money lending instruments of today came about the good old faithful pawnshop. You pledge a valuable commodity to the pawnbroker who then evaluates it and gives you about 60-80% of its value in cash. You are required to pay within six months usually, failing which the pawnbroker can auction off your valuable and keep the proceeds. Gold and diamond jewellery and premium branded products like Rolex watches and antique pieces are some of the popular collateral items.
Typically, you are charged an interest rate of 1% for the first month and 1.5% for subsequent months, so the faster you pay back your loan, the lesser you will have to pay.
- No documents, no credit history, no questions about your ability to pay back. All you need is a precious item you can pledge. With such a hassle-free system, it is not surprising that pawn shops continue to thrive and multiply in Singapore.
- If you thought getting a cash loan within 24 hours is fast, you haven’t tried a pawn shop yet. Pledge your valuables and walk out with cash.
- Unlike other money borrowing options where defaulting tarnishes your credit score and makes it harder for you to apply for loans the next time, there is no consequence to you other than losing what you pledged.
- If you are content with taking the money and don’t plan to pay back within six months, you will have a bad deal on your hands. If you intend to sell, online marketplaces will give you much better deals than pawn shops.
- Like with money lenders, you may find yourself in a pickle if you accidentally do business with a fly-by-night operator. You may also get tangled in a web set up by a loan shark posing as an affable pawnshop owner. To avoid such a situation, you must check out the list of licensed pawnbrokers on the Ministry of Law’s website and do business only with them.
If you have a good credit score and have sufficient income to be eligible, another option for quick cash is a personal loan. Head over to BankBazaar.sg and compare between various personals loans in Singapore.