Thousands of people in Singapore turn to legal money lenders yearly for short- or long-term loans. These agencies offer an effortless way to borrow money when you need it most.
Many borrowers ask themselves, “How much can I borrow from a money lender?”
The short answer is you can borrow up to six times your monthly income from licensed money lenders in Singapore – if your yearly income is at least $20,000.
This amount can help you cover your rent, an exotic holiday, or put the downpayment on a new car.
But there are conditions you have to meet and factors to consider before reaping the advantages of such a convenient loan.
Keep reading below to find out more.
What To Consider Before Taking Up A Loan
Before you apply for a loan from a licensed money lender, it’s essential to consider the following:
Your earnings play a significant role in how much you’re able to borrow:
- $500 for foreigners residing in Singapore who earn less than $10,000 per year
- $3,000 for Singapore citizens and permanent residents (PRs) who make less than $20,000 per year and foreigners earning $10,001 to $20,000 per year
- Six times the monthly income for everyone earning at least $20,000 per year
Your Debt-To-Income Ratio
If you have a lot of debt, you may not be able to borrow as much money as you need.
The current Total Debt Servicing Ratio in Singapore (TDSR) is capped at 55%. Therefore, the accumulated amount of installments across your loans must not be more than 55% of your gross monthly income.
Let’s say you’re earning $2,000 per month, meaning you’re eligible for a $12,000 personal loan from a licensed money lender.
Let’s assume you already have a pre-existing HDB loan with a $1,000 monthly installment. In that case, your new loan’s installments can’t amount to more than $100 per month.
Here are the solutions:
- Make do with a lower sum, probably around $2,000
- Negotiate a longer loan tenure with your licensed money lender
- Opt for a secured personal loan
Your Credit Score
Your credit score is a number between 1,000 and 2,000 that lenders use to evaluate how likely you are to repay a loan. The higher your score, the better.
If you don’t have a strong credit score, you may not be able to borrow as much as you want. In some cases, you may not be able to borrow any money at all.
The solution isn’t applying to more loans, though. But you can:
- Retrieve your credit report from the Moneylenders Credit Bureau (MLCB)
- Get your credit score from Credit Bureau Singapore (CBS)
- See if there are any mistakes outlined in these documents
- Apply for the loans you qualify for, using these reports as a gauge
- Work to correct your financial history to access better loans in the future
Your Credit Utilisation Ratio
This is the percentage of your credit limit used at any given time. For example, if you have a $1,000 credit limit and a $500 balance, your credit utilisation ratio is 50%.
Keeping this number below 30% is ideal because it shows lenders that you’re using your credit responsibly.
If your credit utilisation ratio is too high, you may not be able to borrow as much money as you need.
Differences Between Licensed And Unlicensed Money Lenders
Licensed money lenders are legal businesses that the Ministry of Law regulates. They are allowed to offer loans to people who need them.
On the other hand, unlicensed money lenders are not regulated by the government. This means they’re not held to the same standards as licensed money lenders.
They are also not allowed to offer loans to people in Singapore.
Remember: If you’re considering taking out a loan, you should always go to a licensed money lender.
Unlicensed money lenders are not held to the same standards as licensed ones, which means they may charge higher interest rates, fees, and penalties.
They may also use illegal methods to collect payments from borrowers.
Stories about “Ah Longs”, or loan sharks, in Singapore involve gruesome details, such as kidnapping threats, public humiliation, and long-term extortion.
You don’t want to risk dealing with an unlicensed money lender, so always make sure you’re borrowing from a licensed one.
How To Tell If A Money Lender Is Licensed
Here are some ways to distinguish a licensed money lender from a loan shark.
- Loan sharks post ads and fliers. They may even target you with direct messages on social media, which licensed money lenders are not allowed to do. Licensed money lenders only advertise in business or consumer directories, on their websites, and on their office premises.
- Loan sharks feel sketchy and elusive. They have no contract, no clear conditions, and no disbursement plans. Their rates are exaggerated, and they seem to have a fee for everything.
- “Ah Longs” won’t invite you for due diligence at their offices. Instead, they’ll approach you in iffy places such as an empty parking lot. They’ll also try to hold onto your NRIC or get your bank passwords to supposedly reduce the risk of loan default.
But most importantly, loan sharks are not on MinLaw’s list of licensed money lenders. So always check that list before borrowing money from any agency.
Moneylenders Act And Rules Singapore
Licensed money lenders in Singapore must respect the provisions of the Moneylenders Act.
Here are the essential pointers:
There is no limit to the sum you can borrow for secured loans. However, there are limits to how much you can borrow for unsecured loans, as described earlier.
The only fees that a licensed money lender can charge are:
- The admin fee for your loan can’t be over 10% of your principal sum.
- The maximum interest rate that a licensed money lender cam charge in Singapore is 4% of your outstanding balance. The late payment fee must not exceed $60.
- The maximum licensed money lender interest rate for late payments is 4% per month from the missed installment.
- These fees can’t total more than the amount you borrowed.
If you default on your loan and cannot meet your obligations, a licensed money lender can bring you to court.
If they win, the judge may decide you must cover the money lender’s trial-related expenses.
Here’s how that looks in a practical example.
Let’s say you borrow $10,000, your interest is 3%, and your monthly installments are $750:
- The admin fee can’t be more than $1,000. The licensed money lender can’t ask for this fee before approval to facilitate the loan or negotiate lower interest. That’s what a loan shark would do. A licensed lender withholds the admin fee when transferring the sum to your account.
- The first month’s interest is $300 because it represents 3% out of $10,000. That means $450 out of the first month’s installment goes toward your principal amount. Therefore, the second month’s interest is 3% out of $9,550, equalling $286.50.
- If you miss one $750 payment, the maximum interest rate is 4% out of $750, meaning $30. The late interest rate should not be calculated from your initial loan sum of $10,000.
Remember: Licensed money lenders have no early repayment or fast approval fees.
Other Moneylenders’ Rules in the Act also state:
- Advertising must be done only in business and consumer directories, the lenders’ websites, and their business’s physical premises
- The accepted professional demeanor that licensed money lenders should adopt with their customers
The Moneylenders Act advises borrowers to contact the Registry of Moneylenders and the relevant authorities when money lenders display illegal behaviour.
Differences Between Borrowing From Licensed Money Lender And Bank
The most significant difference between borrowing from a licensed money lender and bank lies in the amount of time it takes to get your hands on the cash.
Banks are bureaucratic institutions that need to vet mountains of paperwork before releasing funds. The entire process can take weeks, if not longer.
Conversely, licensed money lenders only require a few documents, and you can get the money within hours or a business day at most.
Licensed money lenders also have less stringent conditions about your:
- Age. While some banks only grant loans to people aged 21 to 65, licensed money lenders in Singapore feature no maximum age limit.
- Income. Banks in Singapore usually grant loans to people who earn at least $20,000 per year. If you’re a foreigner, you might not get a loan at all unless you’re making north of $45,000.
- Credit score. Banks don’t usually extend loans to people with bad credit because they have a lower risk appetite than licensed money lenders.
But it’s not just that. Expert licensed lenders in Singapore harness their experience to customise specific loan packages for people with lower credit scores. You only have to prove you have a steady source of income to access these packages.
Of course, this convenience comes at a price.
Even if you are dealing with the best licensed money lender in Singapore, its interest rates are likely to be higher compared to banks.
Banks may also loan you up to 10 to 12 times of your monthly income if you have good earnings and a sound credit rating.
Can I Borrow From Multiple Money Lenders?
You can borrow from multiple money lenders as long as the total sum you’re borrowing meets the legal conditions.
For instance, the maximum amount you can borrow from all licensed money lenders, banks, credit facilities etc can’t exceed 12 times your monthly income.
The experts advise against it, though.
If you find yourself in a situation where you need to borrow from multiple sources, maybe it’s time to reassess your finances and look for other ways to make ends meet.
Also, remember that every time you take out a loan, it appears on your credit report.
If lenders see multiple hard inquiries in a short time, they’ll think you’re desperate for cash and will either decline your application or offer you worse terms.
What Is The Maximum Loan A Person Can Take?
The maximum loan a person can take is 12 times their monthly income across all credit and loan providers.
This cap was changed in 2021, decreasing from the previous limit of 18 times of a borrower’s monthly income.
In addition, the maximum amount you can borrow through an unsecured personal loan from a licensed money lender is capped at $250,000.
Remember that licensed money lenders must also follow specific rules imposed through the Moneylenders Act.
What To Do Once Loan Is Approved
Once your loan is approved, the next step is to sign the contract. Ensure you understand every little detail in the contract before putting your signature on the dotted line.
Remember: If something doesn’t make sense, don’t hesitate to ask the money lender to explain it.
The last thing you want is to be surprised by some obscure clause later.
After that, you’ll get the money and can use it however you want. Remember to make the repayments on time; otherwise, you might have to pay late fees or deal with other penalties.
Pro tip: Keep all the paperwork (contract, bills, receipts, and statement of account) in a safe place.
What Happens If I Can’t Pay Back The Loan?
If you can’t repay the loan, the first step is to talk to your money lender and explain the situation.
Some lenders might be willing to work out a new repayment plan that’s more manageable for you.
If you still can’t make the payments, the next step is for the money lender to file a claim with the Small Claims Tribunal (SCT).
This court deals with civil cases involving claims of up to $20,000. The money lender will have to prove that you owe them the money and that you cannot repay the loan.
If the SCT rules in favour of the money lender, they’ll issue a judgment against you. This means that you’ll have to repay the debt, plus interest and other fees.
The money lender can also use specific methods to collect the debt from you, such as appointing a debt collector.
If you still can’t reimburse the loan, your options include filing for bankruptcy or enlisting the help of a support organisation, such as Credit Counselling Singapore.
In general, a loan from a licensed money lender can be an excellent way to get the cash you need.
Just remember to do your research, compare different offers, and understand the contract thoroughly before signing anything.
Licensed money lender U Credit boasts competitive rates, quick approvals, and customised plans regardless of income, nationality, or credit rating.
Apply for a loan here.