Payday Loans – When is it suitable to apply?
What is a payday loan?
Payday loan is also known as short-term loan for its short borrowing period, which is typically from 1 day to maximum 12 months.
This type of personal loan is designed for when you are met with unexpected financial distress before your next payday comes in. So, when your salary is finally in, you must pay off your loan.
How is the interest rate calculated on a short-term loan?
A short-term loan is offered in small amount just for you to get by. It is usually favourable to people with poor credit rating as they constantly face rejection from the mainstream lenders as the risk is high.
Due to its lack of collateral too, the interest rate on short-term loans is usually as high as 18% p.a., or 1.50% per month.
If you were to take up a RM1,000 loan, you will have to pay RM15 in interest for one month:
RM1,000 X (18% / 12 months) = RM15
Now, considering you are taking the same amount of loan for 3 months at 18% p.a. interest rate, you loan amount will incur RM45 interest because you have stretched out your repayment:
RM1,000 X (18% / 12 months) X 3 months = RM45.
What are the pros of short-term loan?
A short-term loan comes in handy for people who are really desperate for quick cash due to its fast application process and minimal paperwork required.
Once you have submitted all relevant documents, you will definitely get your application approved quickly and money disbursed to your bank account immediately.
You already know how much interest you are about to pay because it is fixed throughout the tenure. Plus, no collateral and guarantor are needed to get approved.
Due its higher approval rate, people with low credit rating will have their opportunity to apply for a personal loan.
How can I apply for a short-term loan?
Now, it is crucial that you research and make informed decision before applying for a short-term loan. Be sure that the financial service provider is a licensed company under the Companies Act 2016 with a registered Company Number (e.g. 1234567-X), or a licensed company under the Moneylenders Act 1951.
Once you have everything figured out, you can always walk into the financial service provider’s office with your identity card and supporting documents.
You can also apply for a short-term loan online at the financial service provider’s website, or RinggitPlus.com.
Under what circumstances should I apply for a short-term loan?
Different people have different needs and challenges. It boils down to when it is really needed or when there are no other options available.
It is always a relief to have money when you are faced with emergency situations such as overdue bills to pay, car repair expenses and children’s school fees, among other things.
Always remember to not use your short-term loan for leisure reasons such as buying a new smartphone or going for a holiday as you might get yourself into financial troubles.
If you don’t plan your budget right, you could incur late payment charges for late repayment or, worse, having Debt Collection Agency pester you until you have finally made the payment.