Personal Finance

What Is A Moneylender And What Should You Take Note Of?

August 27, 2022

Do you require a quick loan? There are several reasons why you might want or need to get one.

It could be for an emergency, a large purchase, or consolidating existing debts. If you want to borrow money in Singapore, banks and licensed money lenders are your best options.

However, banks typically have a longer and more stringent approval process, which may be inconvenient if you require cash quickly.

This is why licensed money lenders are a viable alternative to banks when it comes to fast loans because they generally have faster approval.

Even though taking a loan is the most convenient and confidential way to sort out your financial problems, it is wise to consider all other options first.

Not being able to meet your repayments on time can have disastrous consequences for you, your family, and possibly your business.

Here are some key considerations to think about before borrowing money from Singapore’s top licensed money lenders.

What To Consider Before Taking Up A Loan

Before taking a loan from a legal money lender in Singapore, consider the following important considerations.

Type Of Interest Rate

Interest rate is an important consideration when applying for a loan. Typically, the nominal interest rate is lower than the effective interest rate.

This is because the effective interest rate (EIR) takes into account the various compounding periods and fees.

Ignoring this fact may result in you having a loan that is too costly to service.

Fees And Charges

Some lenders will claim that their loans have no fees, but in reality, you will pay the fees in other ways.

Most of the charges are made through a processing fee, which may be between 2-3% of the amount you borrow.

Other fees you should check include early redemption, late payment, tenor change, and cancellation fees. You must consider these fees before agreeing to accept the loan.

Credit Scoring

Money lenders will also consider whether you have a history of paying your loans late.

They will take this into consideration when calculating the loan amount and repayment options.

You can get your credit score by checking with any of the Singapore credit reference bureaus.

Loan Purpose

Money lenders have become innovative with products and have customised their loans to suit various financial needs.

The rates and terms of loans have also become more competitive. However, think carefully about why you need the loan.

It would be a bad idea, for example, to take a short-term emergency loan to make home improvements or fund big-ticket items.

Minimum Repayment Period

The minimum repayment period means the shortest months that your lender demands you service your loan.

Most money lenders will ask for at least 12 months. By doing this, they can be sure that the loan will earn the interest they need.

Paying your loan earlier than the given period will attract a pre-payment fee.

How Much You Can Borrow

Even at the best interest rates, finding a bank willing to offer you an unsecured loan is nearly impossible if your annual income is less than $20,000 per year.

In contrast, a licensed money lender is legally permitted to lend you up to $3,000.

If you earn more than $20,000 per year, you may be eligible for a loan of up to six months’ pay from a licensed money lender.

With this salary, you may also be able to obtain a secured loan of any amount, depending on your ability to repay the monthly installment.

The majority of legit money lenders have loan calculators on their official websites.

By using such tools, you can estimate the monthly payment based on the loan amount you wish to apply.

The table below shows the total maximum unsecured loan amounts that you can borrow at any moment from all Singapore money lenders.

Borrower’s annual incomeSingapore Citizens and Permanent ResidentsForeigners residing in Singapore
Below $10,000 

$3,000

$500
At least $10,000

and below $20,000

$3,000
At least $20,0006x the monthly income6x the monthly income

It is prudent to determine the total loan amount required to avoid financial issues and falling into a severe debt crisis.

Examine your monthly budget to ensure that you can repay your loan in full each month.

Due to the Moneylenders Act, borrowers with significant monthly debt obligations will no longer be permitted to apply for a loan.

Hence, any Singapore money lender will be unable to advance a loan if you have reached your lending limitation.

Interest Rates Charged By Money Lenders

Moneylenders in Singapore are only allowed to charge a maximum monthly interest rate of 4% on loans, regardless of the borrower’s income or whether the loan is secured or unsecured.

The monthly interest rate on personal loans is calculated by deducting the borrower’s scheduled payments from the original principal.

The late penalty rate can only be applied to late payments. The money lender is not permitted to charge interest on amounts owed but not yet repaid.

While 4% seems like a large enough interest rate, legal money lenders in Singapore are an alternative to explore when seeking urgent loans. Their processes are faster and less stringent than those of traditional banks.

In addition, with a licensed money lender, you can still get financing with a smaller income even if the loan is unsecured, unlike traditional banks, eliminating the cost of using collateral.

How To Know If A Money Lender Is Licensed

There are many money lenders in Singapore operating in a fairly similar manner and with similar loan products.

That makes the distinction between licensed and unlicensed money lenders difficult. Here are some guidelines to assist you in distinguishing the two.

Transparency

All terms and conditions on the loan contract must be communicated in a language that you understand by a licensed money lender.

Furthermore, the law requires the lender to engage you and ensure that you understand all the details before taking out a loan.

For instance, the interest rate, payment method options, and repayment period should be outlined and discussed with you.

If you believe your money lender is withholding information on purpose, you should look for another lender.

Loaned Amount

The Registry of Moneylenders in Singapore outlines how much money you can borrow across all money lenders based on your annual income.

However, some lenders will still want to approve a loan that does not conform with the guidelines.

You may feel lucky, but sooner, you will realise you were dealing with an illegal lender, or loan shark.

Interest Rate

According to Singapore’s Ministry of Law, the maximum monthly interest rate that licensed money lenders can charge you is not more than 4% on the principal amount.

The law prevents licensed and legal money lenders from dictating loan fees and interest rates.

Loan sharks, on the other hand, can charge interest rates as high as 10 times of what the ministry set.

Other Fees Charged

Besides the recommended interest rate, money lenders are not allowed to charge late payment fees that, when accumulated on a monthly basis, exceed $60.

In addition, the loan processing fee should not also exceed 10% of the actual applied amount.

Loan Contract

A loan contract must be drafted by a lawyer in accordance with the law, and it needs to be signed by all parties.

You’re probably dealing with a loan shark if you find a lender that will send you money without asking you to sign a contract.

Knowing this requirement, some loan sharks will create lengthy, complex contracts in an effort to mislead the borrower.

Verify the contracts very carefully, or even better, have a lawyer review them. The loan amount, interest rate, repayment period, available repayment methods, and late payment penalties should all be included.

Loan Recovery Measures

Licensed money lenders in Singapore are prohibited from using aggressive tactics or any other kind of unethical practices to recover a loan from you.

If you default on your loan, you can only have your property seized by the lender with the court’s approval.

Before taking possession of the property, the lender must notify you within a reasonable time.

Operations Address

Firms with a moneylending license must have a physical address. Even when you make an online application, you must go to their office to verify and review the loan contract and terms in person.

It is also easy to confirm the address from the list of licensed money lenders in Singapore on the Registry of Moneylenders’ website.

As a result, if a money lender cannot provide you with an address, it is almost certainly a loan shark.

Lodging A Complaint Against A Money Lender

Always keep in mind that the law in Singapore gives you the right to file a formal complaint if you observe any improper behaviour on the part of your money lender.

Be aware that using threats, persuasion, or withholding information of any kind is not permitted. Even when you are unable to pay, the law provides various ways to settle licensed money lender debts in a win-win situation.

The Registry of Moneylenders oversees Singapore’s authorised money lenders and handles complaints.

So you can lodge your complaints with the Registry. You can also make a complaint on its website.

If you feel in immediate danger from money lender harassment, you may also contact the Singapore Police Force and file a complaint.

Provide as much information as possible, such as the date of the incident, and the name and registration number of the money lender.

After you file a complaint, a formal investigation will be conducted, and you might be contacted again to provide more details.

The Registry will proceed with the necessary action after reviewing your complaint. This might entail filing a lawsuit against the lender or having the lender’s moneylending permit suspended.

What To Do After The Loan Is Granted

Before you are granted a loan, you should be aware of all the interest rates and fees you will be charged when borrowing from money lenders.

Make sure that the money lender delivers the correct loan principal amount to you. A loan approval fee of up to 10% of the principal amount may be deducted upfront by the money lender.

Make sure to pay your loan instalments on time each month. In doing so, you will avoid having to pay late fees and interest on late payments.

Money lenders are allowed by law to charge you a fee of $60 or less for each month your payments are late, as well as a 4% interest rate.

Make sure the money lender gives you a receipt every time you make a repayment on your loan, and double-check the name, amount, and date.

Finally, ensure you receive your statement of loan accounts at least twice a year or half-yearly.

Retain all the statements of accounts and receipts of your loan payments as evidence of payments in case you need to lodge any complaints.

Conclusion

Even when it is the only option, applying for a loan is not a simple decision.

However, there are a few things you should think about before taking out a loan. You do not want to find yourself in a difficult situation later on because you were unaware of the rules governing moneylending activities.

Singapore’s Moneylenders Act exists to help regulate the money lending business by protecting borrowers in the event of a dispute between the lender and borrower.

You have the right to be fully informed about all loan terms and conditions. If this is not done, you may file a complaint against the money lender.

If you have any inquiries on a type of loan you want to apply to meet your financial need, check out GS Credit.

We are an accredited, licensed and trustworthy money lender. Send your inquiry through our official website if you need financial assistance.

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