Emergency Cash : 5 ways to get the funds you need.


Covid19 has hit the economy in more ways than one.

In a recent survey, 2/3 of Singaporeans had indicated that they will not have enough savings to maintain their current lifestyle if they were to lose their jobs now. At the same survey, more than 55% had seen their savings reduced during this period. 70% of the respondents had their financial hit by Covid19 through a mixture of a wage cut, no pay leave, reduced commission earnings and more.

Given this scenario, it is no surprise that there are some looking for emergency cash to tide over this situation. If you need cash, here are 5 ways to get the loans you need.

Types of Loans

1 Personal Credit Line (PCL)

A PCL provides with the flexibility to borrow from your bank at any time. You would have to apply the Personal Line with the bank first to utilize it. You would be issued a chequebook or an ATM card for the PCL. Interest is charged base on the amount and the time you use the PCL. 

Pros
  • Gives you access to emergency funds at any point in time.
  • Charges you only for what you use and the time you use.

Cons
  • High-Interest rates - Interest rates range from as low as 9% to as high as 29.8%.
  • Interest is charged daily. This compounds interest leading to ballooning debts.
  • Annual fee for the facility.


2 Credit Cards

If you have credit cards, you can also use it to withdraw cash up to your credit limit. Interest is charged on the amount and the time you use the credit card

Pros
  • Gives you access to emergency funds at any point in time.
  • Charges you only for what you use and the time you use.

Cons 
  • Cash Advance on credit cards has one of the highest interest rate charge. Most banks would charge at least 3 % more over the usual credit card interest rates to a tune of 28% or more per day. 
  • Interest is charged daily. This compounds interest leading to ballooning debts.
  • Annual fee for the facility.


3 Personal Loans






Unlike Credit Cards and PCL, Personal Loans are term loans that provide you with a fixed sum and a fixed repayment plan. 

Pros

  • Personal loans come with significantly lower interest rates than credit cards or credit lines. The stated Interest rates rate from 3.7% to 5.42%. 
  • The Effective Interest Rates (EIR) is a more accurate measurement of the cost of borrowing as it considers other fees like processing fees and loan repayment schedule. It ranges from 7% to 10.96%. 
  • With Personal Loans, you can make longer plans for the funds you borrowed. You only need to make the monthly payment and not worried about the daily accrued interest that can snowball to a much larger sum at the end of the day.

For a quick education on Personal Loan,  you can refer here.



Cons
  • Some banks charge processing fees for the loans.
  • You would have to take a fixed lump sum for the loan.
  • The payment schedule is fix and there might be penalties for early repayment.

To get the best Personal Loan, use an aggregator site like MoneySmart to assess the rates. MoneySmart provides consolidated information from various banks to help you make a more calculated decision for your personal loans. You can check the rates from different banks here.




4 Money Lender


There are 2 types of Money Lender. There are those there are licensed and there are "Ah Long". If you were to get funds from a Money Lender, do go for the former as the latter are well known for sky high-interest rates and harassment tactics. These are the last people you would want to turn to for help.

Pros
  • If your annual income is below $20000, it will be hard for you to get an unsecured loan from the bank. A licensed moneylender, however, can lend you up to $3000.
  • It is a viable alternative for small urgent fees such as paying for car repairs or small medical bills.

Cons
  • It charges much higher interest rates than personal loans.
  • It is not for larger loans such as renovation.
  • Though not as bad as "Ah Long", the debt recovery is notoriously more aggressive than banks with legal debt collectors.

5 Family and Friends


You could always turn to relatives or friends for borrowing. However, unless you know someone rich and willing to take a bet on you, borrowing the amount you need from one person might be difficult. Additionally, things may turn sour if you cannot repay back the funds

Pros
  • Friends or relatives might charge you lower interest rates or provide rate free loans.

Cons
  • If you need a large amount, it would be difficult to convince one person to lend it to you.
  • Should you default on your payment, it may lead to broken family ties or lost friendships. Either of it is not worth the hassle of getting a loan for.


Alternatives to loan
If cash flow is a concern, other than sourcing for emergency funds, you can opt to reduce debt instead. 

Debt Consolidation Plan

A Debt Consolidation Plan (DCP) is a simple repayment plan that brings together all your outstanding unsecured debts ( such as PCL or credit card debts) into one big loan with one bank. With consolidation, you can enjoy a much lower rate than credit lines or credit cards. Instead of paying over 20% in interest, you will be charged at a rate from 3.8% interest. Most banks do not charge processing fees. Some banks even provide you cashback instead.

A DCP is ideal for those who want to improve cash flow instead of getting loans. With a reduction of interest rates, you would see your monthly interest significantly reduced.

To get a better insight on Debt Consolidation, you can read more about it on MoneySmart Blog.


The Bottom Line



If you decide to take a loan, take it for the right reason. There are Good Debts and Bad Debts. If you are taking a loan to purchase items you cannot afford, such as the car or luxury goods, it will be a bad choice to make. On the contrary, if the loan was for the upgrading of skills or consolidation of other unsecured debts at a lower rate, it would be worthwhile to consider. In times of need, sometimes taking a loan is a necessity.

Not sure if you need a loan, you might want to read this article from MoneySmart first before you commit to one.




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