what is a payday loan and how does it work

Payday Loans: The Complete Guide For Beginners

Payday loans are convenient whenever you’re short on cash during the direst situations possible. They’re an excellent alternative for those who need emergency money and have no recourse from friends, family, and colleagues.

Payday lenders can lend you the half or whole sum of your monthly income to address your situation effectively. Dire situations where a payday loan can greatly help are medical emergencies and sudden unemployment. Plus, you can use payday loans to supplement a college fund or when you simply cannot bridge the gap between the remaining days until your next paycheck. But, how does it actually work, how much would it cost you, and where to get the best one?


What is a Payday Loan and How Does It Work?

Here’s a clear definition of a payday loan:

Payday loans are financial products from licensed moneylenders that provides a borrower with half of their income or entire monthly salary. Their loan amounts cannot surpass the borrower’s indicated employment income, and lenders will charge payday loan interest per day until the borrower pays the principal and interest in full by the loan term.



  • A payday loan provides immediate financial reprieve during dire situations, such as unemployment, accidents, and others.
  • Banks do not provide payday loans. Only licensed moneylenders can provide you with payday loans.
  • The Consumer Financial Protection Bureau, Registry of Moneylenders, and Ministry of Law oversee and ensure that all payday loan providers have fair terms and conditions for borrowers.
  • You can easily repay payday lenders by the loan term’s end because your principal is equal to your income.
  • You can quickly borrow payday loans than mortgages, personal loans, and revolving credit.



  • Singapore’s active loan sharks will try to rope in customers with even lower initial interest rates and higher payday loans.
  • The flat 4% payday loan interest by the loan term’s end can be overwhelming for borrowers who haven’t recovered from their job loss or medical emergency.
  • You can only borrow your entire income. You’ll want to borrow a personal loan for a higher amount.


Payday Loans Availability

Licensed moneylenders are the only ones the government permits to provide payday loan services. Therefore, any payday loan offer you received through chat, emails, and other communication channels is illicit. We will discuss legitimate payday loan providers in a later section.


Eligibility and Requirements

Here are the typical eligibility requirements and documents that most licensed moneylenders ask from borrowers. Read more about them below.



  • 18 Years and above
  • Minimum Monthly Income of $1,500 (For Singaporeans)
  • Minimum Monthly Income of $2000 (For Foreigners)




  • Identity card / NRIC
  • Proof of residence (utility bill, etc.)
  • Proof of employment (certificate of employment, etc.)
  • SingPass (to log into IRAS website)


  • Passport
  • Work Permit / S-Pass / Employment Pass
  • Proof of residence (utility bill or tenancy agreement)
  • Proof of employment (certificate of employment, etc.)
  • Proof of income (bank or account statement)
  • SingPass (to log into the IRAS website)


How Much Can Borrowers Get From a Payday Loan?

Licensed moneylenders will limit payday loans to the borrower’s monthly income. They cannot add or make exceptions to payday loans. Therefore, borrowers who need more than one month of their income can opt for licensed moneylender personal loans that provide qualified lenders up to six months of their monthly income.


Payday Loan Details You Should Know

Payday loans are convenient for borrowers, but they have inherent risks, as we’ve described above. Borrowers can only mitigate these risks by staying informed ahead of their payday loan application.

Most borrowers encounter payday loan troubles because they don’t know the accurate interest rates, charges, and fees their payday loans have. Therefore, we’ve included the following details to make things easy and comprehensible during a borrower’s application.

  • Interest Rates: Licensed moneylenders can only charge borrowers up to a 4% monthly interest rate. Therefore, your monthly payday loan interest rate can reach high amounts.
  • Charges and fees: In addition, lenders can charge up to 10% of your principal for your loan processing fee. Late payment of due payday loans can cost up to S $60 per month you’ve missed.


How Much Must Borrowers Pay Back For Payday Loans?

Borrowers must pay back their entire loan amount and interest by the loan term’s end. Payday loans work for borrowers who can pay their payday loans the earliest because it accrues lower interest.

Here’s an example:

A Singaporean who earns S $3,000 borrows S $3,000 from a licensed moneylender. They’ll need to take care of the following by the loan term’s end:

  • S $3,000 principal
  • S $30 maximum processing fee (10% of loan principal)
  • S $120 interest by the end of the loan term (4% of principal by the end of loan term that lenders charge daily)

Thus, you’ll pay a total of S $3,150 for a S$3,000 payday loan within 30 days after your payday loan’s approval.


Finding Licensed Payday Loan Providers

Registry of Moneylenders/Ministry of Law

The Registry of Moneylenders (ROM) is responsible for overseeing all licensing, revoking, and regulating licensed moneylender activities. They initiate examinations and review all consumer reports regarding licensed moneylenders. Plus, the Ministry of Law oversees all ROM activities. It reviews and improves or removes licensed moneylender products and their respective terms and conditions.

ROM’s current database has over a hundred licensed moneylenders that offer regulated and fair financial products, including payday loans.


Alternatives to Payday Loans and Payday Lenders

Borrowers with excellent credit scores can greatly benefit from bank personal loans. These financial products provide you with six months of their monthly salary. However, they might be excessive for payday loan borrowers. Licensed moneylenders offer the same product. Alternatively, banks can offer credit cards and revolving credit equivalent to payday loan amounts.

  • Bank Personal Loans: Bank personal loans provide you with six months of your monthly salary with roughly the same terms as payday loans. However, you’ll need a high credit score.
  • Licensed Moneylender Personal Loans: Licensed moneylenders can provide six months of your monthly salary. They don’t require high credit scores, but they have a shorter loan term length than banks.
  • Credit Cards/Revolving Credit: Credit cards and revolving credit lines are services for privileged customers. They can offer you the same amount a payday lender can give you. However, disorganized borrowers with lines of credit might find themselves easily in deep debt.

Find out more on credit score Singapore.


Where to Apply for a Payday Loan?

Singapore’s licensed moneylenders provide Singapore’s legitimate source of payday products. The country’s credit union and charity organizations may offer the same financial products and payday loans that work the same way.

The Registry of Moneylenders provides the complete list of all licensed moneylenders that provide guaranteed fair and dependable payday loans. However, using the list makes it easy for you to miss out on high-quality offers from other lenders on the list.


Instant Loan

With Instant Loan, you can instantly receive three high-quality quotes and promotions from Singapore’s top financial institutions. These include licensed moneylenders with the best promotional rates for their respective financial products and payday loans work.


Factors To Consider Before Applying

Here are a few things you’ll want to keep in mind before applying for a payday loan.

  1. Loan Purpose: Many studies in many countries have shown that borrowers without any goals for their payday loan debt will likely end up in deep trouble and become unable to repay payday loans.
  2. Income and Job Stability: A storefront payday lender can grant your loan after submitting required supplementary documents that indicate your income and job stability to prove your loan eligibility.
  3. Branch Availability: We highly suggest that you borrow from a bank or licensed moneylender branch nearest to your area. Doing this facilitates supplementary document passing and receiving cash advance loans. However, some banks and licensed moneylenders disburse the amount directly into the borrower’s bank account.
  4. Pre-Calculated Interest Rates: We provided the sample computation for a licensed moneylender payday lending product above to show the possible loan amount you’ll pay in the future. Create a similar calculation for all payday lender products and other loan services that you’ll use.


How to Apply For a Payday Loan?

Payday loan applications from financial services aren’t rocket science. You’ll just need to follow your payday lender’s required steps, and you’ll get your payday lending loan amount disbursed in your bank account quickly.

  1. Get a Quote

You can go through each available licensed Singapore moneylender’s customer service channel to get a quote. On the other hand, you can use loan quotation services, such as those from Instant loan. You can get up to three high-quality quotes after passing one application form.


  1. Fill Out Your Application Form

Customers who are satisfied with a specific licensed moneylender’s quote should now fill out the payday lending service’s required application form. Unsecured short-term loans typically have fewer application form items because of their initial loan value.

Lastly, submit your filled-out form to the licensed moneylender’s appointed submission channel. Then, you’ll need to wait a few hours before receiving your cash.


  1. Review Your Loan T&Cs

Customers should read their loan terms and conditions in depth. It pays to look into your short-term loan’s terms and conditions to avoid predatory payday loans. Thus, ROM isn’t infallible, and you can report unscrupulous licensed moneylenders and their terms and conditions to keep them off the market.

Submit your loan application only after you’re satisfied with your product terms and conditions.


  1. Submit All Supplementary Documents

We’ve provided you with the complete list of supplementary documents above. Keep in mind that your lender might ask for more documents that can turn your borrower profile satisfactory to their requirements.


How Do I Know if A Moneylender is Licensed?

Every lender on ROM’s database is a licensed moneylender. Instant Loan has its selection of greatly-trusted licensed moneylenders, credit unions, and financial institutions. Therefore, you can ask your licensed moneylender about their license number to ensure they’re legitimate lenders.


The Best Parameters to Find Excellent Payday Loans

  1. Competitive Interest Rates: All licensed moneylenders can provide you with 1-4% interest. Choose the lowest possible interest quote.
  2. Flexible Payment Terms: Licensed moneylenders can provide you with flexible payment terms that work for your income schedule
  3. Customer Reviews: Check your licensed moneylender’s online reputation among other lenders in the country
  4. Detailed Fees and Charges: Transparency builds customer trust. Issuing these data in full detail s a clear sign of transparency.
  5. Professional Customer Service: Your chosen licensed moneylender must be willing to answer your questions after taking out your financing.


Frequently-Asked Questions

  1. Are Payday Loans Enough For Emergencies?

It depends on your existing income. A month of salary in advance can help borrowers address major medical emergencies. However, we highly recommend personal loans for sudden unemployment because most professionals take a few months before finding another position in the country. Thus, a short-term loan is the best option.


  1. What Happens If I Fail To Pay For My Payday Loan?

The payday lender has the right to ban you from using their services in the future. Plus, they may take your case to Singapore’s Small Claims Court. Customers who can’t repay their loans will have to pay for the principal, interest, penalties, legal fees, and possible damages to the licensed moneylender.


  1. Is It Better To Use a Personal Loan Than Borrow Money From Payday Lenders?

A personal loan provides you up to six months of your monthly salary. On the other hand, payday loans offer you a month of your salary to address an emergency. In addition, payday financial products have shorter loan terms than personal loans.

For example, a licensed moneylender provides a payday loan term of 30 days. Alternatively, they provide you up to a year to pay for your personal loan. Therefore, we highly recommend that qualified payday borrowers use a personal loan instead, keep the extra cash for a wider margin, and repay their financing on the next payday possible or a few months ahead of the deadline.


  1. Isn’t Payday Lending a Scam?

Payday loans and unlicensed financial lending were scams before the Ministry of Law regulated all Singaporean moneylender activities. Therefore, all Singapore payday loans have fair and trustworthy terms and conditions. Customers have recourse in case they’re working with an unscrupulous lender.

Payday lending isn’t a scam. However, small groups of unlicensed Singaporean moneylenders still exist in the country. Thus, only trust financial institutions in the Registry of Moneylenders and Instant Loans’ roster.


  1. What Are The Common Pitfalls of Payday Loan Mismanagement?

Payday loan mismanagements are similar to many pitfalls of other financial products. Borrowers who fail in managing the following areas will have major credit bureaus downgrade their scores.

  • Ballooning Interest Rates: Singaporean lenders will inform you about your chosen financial product’s interest rates. Therefore, any ballooning interest rates in your financing is your responsibility.
  • Consecutive Late Payment Fees: Continuously missing the 30-day loan term deadline will give you regular penalty fees per month.
  • Lender Mistrust: Licensed moneylenders can blacklist you after you’ve paid your full loan amount because they cannot trust your financial judgment.


  1. How Long Until I Receive My Payday Loan Cash?

You’ll likely receive your payday loan cash amount within the same day you applied for your loan application. Licensed moneylenders will likely disburse your cash in their respective branches or the savings account you’ve listed.


To Sum Everything Up

  • Payday loans give you your monthly salary in advance.
  • You can use payday loans for emergencies.
  • These short term financial products have their respective charges, fees, and interest.
  • You can still get in high debt by mismanaging payday loans
  • Alternatively, you can use a personal loan rather than a payday loan for extra expense margins and a longer loan term.

You can always find the best quotes from Instant Loan after you’ve filled out the form we’ll provide on our website. Get started finding the best financial products suitable for your needs today.


Instant Loan CTA Banners DesktopInstant Loan CTA Banner 2