Personal Finance

What Is The Risk Of Loaning From A Licensed Money Lender?

November 24, 2022

Let’s say you need money and are considering approaching a money lender for immediate access to cash.
But what is the risk of loaning from licensed money lender?

While most of us tend to view all money lenders as a single group, working with a legal money lender in Singapore presents a very different financial risk than an underground loan shark. Needless to say, borrowing from the latter can make your life a misery.

What To Consider Before Taking Up A Loan

So you’ve made the decision to get into debt. It’s not the most optimistic way of describing the process, but it immediately focuses the mind on what is the risk of loaning from licensed money lender.

Banks and other lenders make money by lending it. So if you have a decent credit record, then they will want to lend to you, but that’s not really the point.

The real point is to decide if it is really necessary or practical for you to borrow money. To do so, you must be in a position where you know that you can afford to pay it back in good time, instead of being unable to pay a money lender in Singapore.

For example, there’s little point in getting money for a loan in Singapore for your dream home if it gets taken back from you a few years later.

There will also be the temptation to get more credit than is required for a money loan in Singapore if it is offered to you – avoid this.

You should borrow just enough cash to cover your needs at the lowest interest rate, then repay the money as quickly as possible. Avoid longer repayments if possible.

It’s worth doing a financial risk assessment before borrowing from a legal money lender in Singapore.

Start by asking yourself these questions:

  • What do you need a loan for? Getting a loan for your mortgage, education, medical expenses, or existing loan restructuring are valid reasons – an expensive holiday is not.
  • How much money do you really need to borrow? Don’t accept any more than is required.
  • How long do you need (or will be given) to repay the loan. Both your monthly payment and your licensed money lender interest rate will be affected by this.
  • How much will you pay in interest? And will the interest rate that you are offered when applying for a loan remain the same throughout the duration of the loan?
  • Are the monthly payments affordable to you? If you are unemployed for a period of time, will you still be able to cover the repayments? Most borrowers should keep their total monthly debt repayments below 40% – preferably well below that.
  • Is the loan likely to be approved? If your credit score isn’t good enough, that may be an indicator that it isn’t a good time to borrow. Some may be tempted to approach a loan shark, but the question of what is the risk of loaning from licensed money lender is minimal in comparison to the dangers of doing business with a loan shark.

What To Prepare Before You Take A Loan

A loan calculator is a useful tool that can give you an idea of how much a loan in Singapore is going to cost you, including monthly repayments and the interest rates.

There are specialist websites that compare the various market offerings, or you can visit the websites of the money lenders that you want to approach for a loan.

Documents to prepare before applying include your proof of employment and income, proof of residency, tenancy agreement, CPF statement, and your NRIC.

Minimise the risk of loaning from licensed money lender in Singapore by having a good think about the above considerations.

If you feel ready to take a loan, prepare the required documents before you make your application.

When Should You Take A Loan From A Licensed Money Lender Instead Of A Bank?

There are two main scenarios when it will be advantageous for you to approach a legal money lender in Singapore:

The first is if you need access to money urgently. We all run into situations in life where there are financial emergencies. This means you simply don’t have time to go through the extensive credit checks that many banks require because you need fast cash the same day.

The situation could be an emergency such as a medical emergency or an unforeseen issue. In such a case, the potential risk of loaning from a licensed money lender is secondary to the requirement for immediate funds.

The second is if you’ve made enough payment mistakes that have damaged your credit score enough to make a conventional bank reject your loan application.

This is when a licensed money lender may be a more viable option than a bank.

Licensed money lenders in Singapore are generally more flexible with their clients than the banks, and usually will apply a degree of common sense to their decision-making process.

For instance, if a loan was turned down by an automated credit check, a licensed money lender should be able to make a decision based on the facts and their experience with customers.

How To Tell If A Money Lender Is Licensed

It’s crucial to do a background check on a legal money lender in Singapore to determine if they’re legitimate. The risk of loaning from a licensed money lender is manageable.

However, if you don’t check if the money lender has a license, you have much less protection if things go wrong.

The procedure of checking a licensed money lender is straightforward. Find the Ministry of Law’s list of licensed money lenders in Singapore online. Next, ensure that the moneylending company that you intend to do business with is on this list of officially approved and licensed money lenders.

You can also visit the money lender’s place of business. If it is a licensed money lender, the license should be displayed prominently.

Risks Of Dealing With A Licensed Money Lender

However, just because a money lender has received a license to conduct a moneylending business in Singapore doesn’t mean that its operations are automatically above reproach.
There are many legal businesses that unfairly profit from their clients by sailing as close to the wind as they can, cutting corners along the way.

So you must be aware of what is the risk of loaning from licensed money lender.

The most significant risk is being unable to pay a money lender in Singapore if you have taken out a secured loan that involves collateral.

In this situation, you will be faced with the same consequences as an unsecured loan default – a bad credit score – plus the more serious possibility of losing whatever you have secured the loan with, such as a property.

Securing a loan with your home as the collateral is one of the most serious decisions that you can make. If things go wrong, the money lender can go to the courts to force the sale of your home to recover the debt.

Also, if you decide to clear the loan early, be advised that there may be an early repayment charge for doing so.

If you have a poor credit score and are still being offered a loan at a lower interest rate than you expected, and the amount of the loan is also high, think very carefully before accepting a secured loan.

You must always maintain the ability and understanding of how to settle a money lender debt in all circumstances.

In a situation where you have the prospect of a forced sale looming over your home, immediately reach out for help. There are many organisations in Singapore that will provide credit counselling and debt advice for distressed borrowers.

However, the best answer is to take a proactive approach and read up thoroughly on the risks involved before taking on debt.

Respected and legal money lenders in Singapore such as GS Credit will provide you with information that will help you.

How Much Can You Borrow From A Licensed Money Lender?

If you decide to take out a secured loan, then there is no limit to the amount that you can apply for from a licensed money lender in Singapore.

As for an unsecured loan, the amount will depend on your annual salary.

If you are a Singaporean or permanent resident earning less than $10,000 a year, you will struggle to find a legal money lender in Singapore who will give you a loan although you can legally be lent up to $3,000. Foreigners in Singapore earning less than $10,000 yearly are limited to $500.

Those earning over $20,000 a year – regardless of citizenship status – can theoretically get a loan of up to six times their monthly salary if the licensed money lender believes that you can repay it.

Interest Rates That Licensed Money Lenders Can Charge

The licensed money lender interest rate in Singapore is set by the Ministry of Law. So in this regard, the risk of loaning from a licensed money lender is fixed.

A licensed money lender can only charge a maximum of 4% a month on the remaining principal of the loan.

Fees That Licensed Money Lenders Can Charge

Firstly, the money lender is permitted to charge a fee of up to 10% of the loan principal amount when the loan is granted.

Secondly, it can also charge a late payment fee that does not exceed $60 per month for each month the loan is repaid late.

Thirdly, if things go wrong and a money lender decides to make a claim to recover the loan from you that is then successful in court, then you will be liable for the legal costs.

Finally, the sum of all charges charged by a licensed money lender must not be greater than the loan principal amount.

For example, if you take out a loan of $5,000, then the total fees (including late fees) and interest charged by the licensed money lender must not be more than $5,000.

What To Do Once Your Loan Has Been Approved

After your loan has been approved, follow these points to mitigate the risk of loaning from licensed money lender in Singapore:

  • As mentioned, a legal money lender in Singapore is entitled to a maximum of 10% of the principal as a loan approval charge. Ensure that you have received the correct upfront amount upon loan approval.
  • Make it a priority to make payment punctually. If you forget about it, you will be charged a late payment fee.
  • Your licensed money lender should give you a digital receipt after each repayment. Check these receipts carefully and retain them.

Choose The Right Licensed Money Lender

Now that you know what is the risk of loaning from licensed money lender, you can see how crucial it is to choose the right licensed money lender.

GS Credit is one of Singapore’s leading licensed money lenders. We are respected across the industry, trusted by thousands of Singaporeans, and regulated by the Registry of Moneylenders.

If you need a loan urgently, our application process is streamlined to be done in minutes, with a guarantee that all or our loans are processed in one hour.

Not only do we offer a wide variety of loans, our services are open to Singaporeans, permanent residents and foreigners.

We are professional, experienced, transparent, and ready to serve you today.

Get in touch and let us solve your financial problems, or apply for a loan now.

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