What Interest Rates Can A Money Lender Charge?
December 11, 2022
Paying off bills for a degree, home or a wedding can take its toll financially. Opting for bank loans can be a viable option in some situations.
Yet it is not always the most feasible choice, especially if you have a poor credit score. In such instances, a licensed money lender can be your way out of a cash crunch.
But before you sign up for a loan amount with a money lender, it is important that you understand what getting a loan entails.
Applying for a loan with a licensed money lender comes with its fair share of legal obligations, additional fees and other charges, depending on the type of loan you are eligible for. This is based on your annual income and your citizenship status in Singapore.
But first you must know about the money lender interest rates a licensed money lender can charge you, so you can make an informed decision.
How Much Can You Borrow?
Before you sign up for a loan contract with a licensed money lender in Singapore, it is important that you determine the loan type and amount that you qualify for.
According to the Ministry of Law, Singapore, the maximum loan amount that you can apply for as an unsecured loan from a licensed money lender depends mainly on your citizenship status and your annual income.
The amount of money that you can borrow for unsecured loans is limited so that over-borrowing can be avoided. This means borrowers won’t need to face the pressure of paying back any debt that they cannot afford in the long run.
In Singapore, the unsecured loan amount that you can borrow cannot be greater than 12 times of their average monthly income.
Singapore citizens and permanent residents with an annual income less than $10,000 are eligible for a loan of $3,000 from a licensed money lender, while foreigners can secure a loan of $500 with the same annual income.
Singapore citizens, permanent residents, and foreigners earning more than $10,000 and less than $20,000 are eligible for a $3,000 loan.
Singapore citizens, permanent residents, and foreigners earning $20,000 or more yearly are eligible for a loan amount that is up to six times of their monthly income.
What Are The Money Lender Interest Rates And Fees?
The Ministry of Law has set some rules that have limited the amount of fees and additional charges a licensed money lender in Singapore can charge from a borrower.
As enforced on 1 October 2015, all licensed money lenders in Singapore cannot charge money lender interest rates higher than 4%.
This 4% interest rate cap applies regardless of the loan amount, the borrower’s annual income, and citizenship status. It is applicable to both secured and unsecured loans.
If a borrower is unable to repay the loan installment on time, the late interest a money lender can charge them with legally is also capped at 4%. This is charged every month that the loan installment is repaid later than the due date. A late fee submission charge of up to $60 can also be charged each month.
In addition, any administrative fee that a licensed money lender charges for its services must not be more than 10% of the principal loan amount.
All in all, the fees and charges that a borrower is legally obliged to pay to a licensed money lender, including interest, late fees, and administrative charges, cannot exceed the principal loan amount.
Pros And Cons Of Banks And Licensed Money Lenders
So which would be a better choice for you? Is a bank loan a viable option, or would opting for a licensed money lender be wiser in the long run?
The decision boils down to your credit score and your overall financial situation. Licensed money lenders are perfect for those with a poor credit history, and those that the banks refuse to grant loans to.
Banks are mostly focused on borrowers who are relatively sound financially, have a credible credit history, and are able to provide surety to the bank that they would be able to pay back the loan amount.
On the other hand, a licensed money lender would not ask for your credit history in your time of need. Instead, it looks at your annual income and citizenship status when providing you with unsecured loans.
Since banks are bigger financial institutions that are capable of giving large loan amounts, they can lend up to $200,000 to those with stable incomes, and a good credit history.
Another key difference between the two types of lenders is the approval time.
Licensed money lenders require minimal paperwork, and can give you instant loans. Some may even give you the required amount within an hour.
On the other hand, getting personal loans from banks in Singapore can take 24 hours or longer after you submit your loan application.
But perhaps the biggest, and most defining feature of both is the interest rate charged. Banks can charge an interest rate anywhere from 5-7% per year, while money lender interest rates are capped at 4% per month, as regulated by the Ministry of Law.
What To Consider Before Taking A Loan From A Money Lender
Before you get a loan from a registered money lender in Singapore, it is important that consider the following things so as not to get into further financial troubles:
- It is important that you take note of the method that the money lender used to approach you. All licensed money lenders in Singapore cannot reach out to potential clients through cold calls, emails, text messages, WhatsApp, or other unsolicited methods.
- They are only allowed to advertise through consumer and business directories, their websites, and by placing advertisements on the doors and windows of their physical office location.
- Note that you are under legal obligation to fulfil the loan contract that you have signed with a licensed money lender. Failing to do so can result in strict penalties.
- Make sure that you are able to pay back the loan amount of loan, the interest, the late fees and any other administrative fees, keeping your annual income and financial obligations in mind.
- Do not borrow an amount that you will not be able to pay back with ease, as doing so will put yourself under financial constraints.
- After you have made sure of the amount of loan you need and are able to pay back with ease, check whether the money lender you are intending to work with is licensed and registered, as can be confirmed with the Registry of Moneylenders in Singapore.
- It is required by law that a licensed money lender explains the terms and conditions of the loan before you sign the loan contract.
- It should highlight all additional charges and fees to you in a comprehensible manner. The licensed money lender should make sure that you understand the terms fully without rushing you into signing the loan contract.
- So ask questions and negotiate the best terms of your loan contract, including the repayment schedule, interest rates, and the late fees incurred, if any.
What To Do After Taking The Loan
You have signed your loan contract and received the loan amount. What next?
Make sure that you follow these tips after taking up a loan from a licensed money lender in Singapore:
- Check the amount of loan that the money lender has given to you. Make sure it is the correct amount, as stated on the contract and all relevant documents.
- Remember that the money lender is only allowed by law to deduct an upfront fee on a loan approval that is up to 10% of the principal amount.
- After you pay back each loan installment on the due date, ensure that the money lender issues you a receipt stating the correct amount and date of the repayment.
- Keep all receipts with you safely as a record that you have paid all your installments on time. Keeping your statements of accounts is also important as evidence of timely payment, to avoid any legal complications later on.
Be Clear About What A Licensed Money Lender Can Charge
Choosing a licensed money lender during an emergency should be an option only if you are sure that you will be able to repay the loan amount easily. This ensures you are not digging yourself another hole.
According to personal finance experts, you must borrow only what you need, and create a budget for spending it wisely. Knowing about money lender interest rates also helps.
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