Need a loan urgently but can’t get one?
Banks typically reject loan applications from those who have poor credit scores.
But there are more than 100 licensed money lenders operating in Singapore. These businesses cater to borrowers who need money urgently and can’t meet the criteria of banks.
But before you get a loan from a licensed money lender, you must know all you can about money lender interest rates so you don’t get ripped off.
This article will look at money lender interest rates, and the fees and charges you can expect from a legal money lender in Singapore.
How Much Can You Borrow?
Different licensed money lenders may charge varying interest rates. However, they all follow the same rules under the Moneylenders Act.
There is no borrowing limit for secured loans that require collateral. Unlike secured loans, unsecured loans do not require any collateral.
As a result, they have more stringent requirements and conditions when it comes to how much you can borrow. The loan amount you can get depends on factors such as your annual income and citizenship status.
Singaporeans and permanent residents who earn less than $10,000 annually are eligible for a loan of up to $3,000. However, foreigners earning the same income can only get a $500 loan.
Regardless of citizenship status, an annual income of $10,000 to $20,000 qualifies a borrower for a maximum loan of $3,000. Those with a higher annual income than $20,000 can borrow up to six times their monthly salary, regardless of citizenship status.
It is common knowledge that personal loans from licensed money lenders are easier to qualify for as compared to banks.
The major caveat of these deals would be the money lender interest rates.
What Are The Interest Rates Money Lenders Can Charge?
A licensed money lender interest rate is higher than that of traditional financial institutions such as banks.
Since 1 Oct 2015, the legal limit for monthly interest rates charged by money lenders has been a maximum of 4%. This maximum interest rate applies for secured and unsecured loans, regardless of the loan amount or a borrower’s income.
Interest charged for late payments cannot exceed 4% for each month a loan is overdue, regardless of the original loan amount.
After subtracting the total payments made by the borrower designated for the principal, the amount of the remaining principal will be used to compute the interest charged on the loan.
For example, if you borrow $5,000 but pay back $2,000, then only $3,000 of the original loan amount is eligible in the interest calculation.
Remember, only overdue payments will be subject to the late interest fee. It means a licensed money lender in Singapore can’t add interest when you borrow money and repay it before it’s due.
Here is an example:
If you borrow $5,000 and don’t pay back the first $1,000 on time, the lender can charge you late fees on the $1,000 you owe, but not on the $4,000 that is not yet overdue.
What Are The Fees Money Lenders Can Charge?
Since 1 Oct 2015, the Singapore government has allowed licensed money lenders in Singapore to charge only the following fees and costs:
- A 10% admin fee deducted from the loan principal after loan approval
- A late monthly fee of no more than $60 per month
- Costs incurred by a money lender if it pursues legal action to recover a defaulted loan, as determined by the court
The Singapore government also prohibits money lenders from charging fees that exceed the loan principal if the late fees, loan principal interest, upfront administrative fee, and late interest were combined.
For example, if you borrow $5,000 and pay it back with interest, late interest, an administration fee of 10%, and a $60 late fee every month, the total amount you pay back should not be more than $5,000.
What To Do Before Taking A Loan From A Money Lender
Before taking out a loan with a licensed money lender, it’s essential to know how to differentiate a legitimate lender from a scammer.
Here are some ways to verify that a money lender is legitimate.
1. Check That The Money Lender Is On Ministry Of Law’s List
Referring to the MinLaw’s list of licensed money lenders in Singapore is the quickest way to confirm the legitimacy of a lender.
This list of licensed money lenders is updated monthly by the Registry of Moneylenders. The website also mentions the blacklisted money lenders to avoid if you need a personal loan in Singapore.
If your lender is on the list, check that its details match what is included in the list. But don’t just look into the list of licensed money lenders in Singapore – you should also read reviews from previous clients.
2. Look For The Licensed Money Lender’s Office Location
If your money lender has a physical office location, you can assume it is legitimate. Visit this location to complete the verification process.
A money lender that approves loans remotely and that doesn’t have an office is most likely a loan shark. Another warning sign is if someone offers you a loan and asks that you meet up in an unknown location that is not an office location.
3. Pay Attention To The Ads
If a money lender contacts you via phone or text message to offer you a loan, it is most likely an illegal or unlicensed lender or loan shark, also known as an “Ah Long” in Singapore.
A licensed money lender can only advertise in the following ways, as per MinLaw’s regulations:
- Its own company website
- Ads displayed inside and outside its business premises
- Listings for businesses and consumers in print and online directories
Contact the lender directly if you have questions about the information it provided on these three platforms.
Be wary of anyone who contacts you out of the blue offering you a personal loan. In Singapore, licensed money lenders cannot contact customers via unsolicited emails, text or WhatsApp messages, or phone calls.
4. Meet The Licensed Money Lender In Person
Today, because of technological advancements, it is typical for licensed money lenders to offer online applications.
Nonetheless, visiting the office location of a licensed money lender in person for verification is a crucial and mandatory step.
Remember that you should be suspicious of any licensed money lender that doesn’t insist on meeting you in person for verification. You should take this as a warning and leave immediately.
5. Ensure That You Receive All Necessary Paperwork
After reviewing your NRIC and other identifying documents, a licensed money lender must return them to you. Plus, you’ll receive a loan agreement.
Before signing the loan contract, make sure you understand the clauses of the loan agreement completely. The licensed money lender must explain them clearly to you.
It’s best to avoid a money lender if it does not give you clear information about the loan contract or explain the terms properly to you.
The loan contract should contain vital information such as the repayment terms, loan tenure, and interest rate.
What To Do After Taking The Loan
You should verify the loan amount is correct after the money lender disburses the loan principal to you and deducts the admin fee.
As mentioned earlier, a legitimate money lender can only charge 10% of the loan’s principal as an admin fee.
You should also receive an official receipt after every repayment. Check that the details are correct.
Keep these documents in a safe place:
- A copy of the loan agreement
- Documentation of all the loan payments you’ve made
- Your complete loan accounting statement
- All relevant financial records, receipts, and other paperwork
How To Settle Licensed Money Lender
Be sure to make your monthly payments on time. Should you be late with a payment, the money lender will charge you a late fee and interest on the total amount owed.
Late fees won’t exceed 4% per month, but if you let your debt mount, it may become more challenging to repay. Over time, it might become a big problem.
Always Be Clear About Money Lender Interest Rates
A licensed money lender such as U Credit can provide you with the emergency funds you need. We offer financial help with simple and clear loan terms. We do not charge hidden fees.