What Should You Know About Moneylender Rules?

December 1, 2022

Many people in Singapore turn to unregulated money lenders because of the restrictions imposed by moneylender rules. But turning to a loan shark will only turn your life upside down.

A better option would be to know what the moneylender rules are about so you can get a loan from a licensed money lender instead.

But do you really need a loan?

First, consider your income and current financial obligations. Then evaluate whether you can repay the loan.

Never take out a loan until you’re sure you can afford to repay the total amount. You should know that if you can’t make the payments on time, the late penalties and interest will impact your ability to provide for yourself and your loved ones.

But what should you be aware of regarding moneylender rules in Singapore? Also, how do you settle a licensed money lender?

How To Know If A Money Lender Is Licensed

The Ministry of Law in Singapore has a comprehensive list of all licensed money lenders in Singapore.

This list, which is regularly updated, helps Singaporeans determine whether a money lender is legitimate. You can find the list online and download it as a PDF for easy reference.

Note that a money lender that contacts you unsolicited calls or text messages is likely to be unlicensed.

Licensed money lenders are restricted by law when it comes to placing advertisements. The only three platforms they can use for advertisements are print and online consumer directories, their own websites, and posters placed in the interior and exterior of their approved place of business.

How Much Can You Borrow?

There are a lot of variables that determine how much money you can borrow from a licensed money lender.

There is no limit to how much you can borrow with a secured loan since it involves collateral.

It’s a different case for unsecured loans. The maximum amounts you can borrow are as follows.

If you’re a Singaporean or permanent resident with an annual income of less than $20,000, you can only borrow up to $3,000 from any money lender.

Nonetheless, if your annual salary is over $20,000, you can borrow up to six times your pay from a money lender.

In Singapore, foreigners have different requirements from locals.

Borrowing limits of $500 are set for those with annual incomes that are below $10,000.

Foreigners with incomes between $10,000 and $20,000 are eligible for up to $3,000, and up to six times their monthly income for those with annual incomes over $20,000.

Requirements And Considerations

After verifying your identity using your NRIC and other documents, a legal money lender in Singapore should return them to you. A loan agreement will also be provided.

The licensed money lender should also take the time to explain all the loan agreement details before you sign it. The interest rate, the terms of repayment, and the time frame for repayment should all be included in the loan agreement.

Once you have a firm grasp of the specifics, you may begin collecting the necessary materials for submitting your loan application. Specifically, these items are:

NRIC, proof of employment, and income
Current credit rating
CPF statements
Evidence of your current residence (e.g. utility or phone bills)
Rental agreement, letter of employment, copy of work permit, and bank statements (for foreigners)

Licensed money lenders offer personal and other unsecured loans based on your annual income rather than credit score.

They typically want proof of income such as payslips so they can decide whether you can afford to repay the loan.

Money Lender Interest Rates And Fees

According to the Moneylenders Act in Singapore, the highest rate of interest that a money lender can charge is 4% per month.

The loan’s interest is calculated on the remaining principal balance from month to month. For example, 4% interest would be applied to the remaining $10,000 of a $20,000 loan.

Regardless of your income or whether the loan is secured, the same cap applies.

In addition to the interest, you must also pay other fees.

First, a late fee of no more than $60 will be charged if your monthly repayment is late. A late interest rate of up to 4% will also apply.

In addition, an admin fee of 10% will apply once the loan is approved.

You will also be responsible for the money lender’s legal fees in court if the lender successfully recovers the loan.

What Should Happen Before And After Loan Approval

You should be vigilant during the loan approval process. Here are a few things you should do before and after your loan approval.

Before Borrowing From A Licensed Money Lender

Consider the following before applying for a loan:

Verify That You Are Capable Of Fulfilling The Terms Of The Agreement

Think carefully about your ability to repay a licensed money lender’s loan on time before agreeing to its terms.

This is because if you borrow money from a legitimate money lender, you’re legally obligated to repay it according to the repayment schedule laid out in the loan contract.

The loan principal plus any additional interest (including both the nominal and late interest) must be repaid.

So you should assess your personal income and debts to see if you can afford to repay the loan as per its terms and conditions.

Borrow only what you know you can comfortably repay under your current financial circumstances.

Be Aware Of The Repercussions

If you are unable to pay a money lender in Singapore by the due date, you may have to incur late interest costs.

In other words, the longer you wait to repay the loan, the greater the chance that the interest and principal may accrue.

This is the case if late interest payments are part of the contractual penalties for breach.

After Borrowing From A Licensed Money Lender

You should be given a copy of the finalised loan agreement. This document serves as a legally binding agreement.

Due to the contractual nature of this agreement, it is imperative that you fully grasp the clauses in this contract.

Every time you pay back a loan, request for a receipt. Verify that your name, the amount, and date are correct.

These receipts prove that the loan has been repaid. As a result, you will be safeguarded if the claim is contested down the road.

Get a loan account statement in January and July of each year from your money lender, and review it carefully for errors such as the wrong name, amount, or date.

Account statements and receipts for payments made should also be kept as evidence of payment.

What If You Cannot Pay The Loan?

Here are a few things you can do if you can’t settle your loans on time.

Request For An Extension

A straightforward solution is to negotiate a payment extension with a money lender in Singapore. If you need assistance with credit counselling or managing your debt, try reaching out to social services for help.

Declare Bankruptcy

Bankruptcy is an option if you owe more than $15,000 and have little hope of repaying it, even after renegotiating your loan installments.

When you declare bankruptcy, interest stops accruing. It also prevents legal money lenders in Singapore from pursuing you to court. But it should be a last resort because your credit score will be severely affected.