If you ask any financial or accounting expert on what is the risk of loaning from a licensed money lender, you might get mixed responses.
But in Singapore, there are no major risks in dealing with a legal money lender in general.
However, the same cannot be said if you borrow money from an unlicensed money lender or loan shark.
These individuals or firms often operate without permits, break laws, and hide from the scrutiny of the authorities.
It is therefore prudent that before you plan how to settle a money lender and the licensed money lender interest rate so that you know everything about taking a loan in Singapore.
Before we answer the question of what is the risk of loaning from a licensed money lender, let’s look at some of the important things regarding loans in Singapore.
What To Consider Before Taking Up A Loan
Obviously, before taking a loan from a licensed money lender in Singapore, you’d want to shop around to see if there is a friend or a group of friends who can loan you money.
But if there is no such alternative, and it is evident that you should get the loan from a money lender, then here are some of the important things you should take note of before you agree to take a loan:
1. How To Tell If A Money Lender Is Licensed
It is reasonable to think that the first step you’d take before you apply for a loan is to check if the money lender is indeed licensed.
True, some of the firms that purport to be registered money lenders are actually loan sharks seeking to drain you left, right and centre.
If you fall prey to these loan sharks, you will not only lose your money, for which you pay high interest for, but also your privacy.
These illegal companies aim to gather as much private and confidential information from you as they can so they can use it for illicit purposes.
For instance, after gaining access to your personal details, they can steal your money or property.
It is therefore important to know the type of money lender you are dealing with. But how?
To know if the money lender you intend to close a deal with is legit, you can visit the Ministry of Law website. There, you can see a list of all registered money lenders under the Registry of Moneylenders.
If the name of the money lender you are in contact with is in the list, that tells you it is a legit, licensed, or registered money lender in Singapore. You can trust it.
However, if the name of the money lender in question is not on the list, you should run for your life. This is because that is an illegal money lender. In other words, it is not legit.
2. The Money Lender Must Have An Office
A legit money lender must have a physical office where it serves clients from.
In fact, as we’ll see much later in this article, it is a requirement by law that all licensed money lenders in Singapore have a physical office.
Many licensed money lenders also have websites.
A website is like the extension of an office. The good thing about a website is people do not have to visit the physical office to get information on the money lender. They can get everything on the website and make a decision.
By the time you visit the money lender’s physical office, you’d have more or less made up your mind.
3. Can You Abide By The Terms Of The Loan?
Taking a loan is one thing and knowing how to settle the money lender is another.
Therefore, before you decide to take a loan from a money lender, ensure you are comfortable with its terms and conditions.
Granted, the Ministry of Law acts as a watchdog of sorts for licensed money lenders.
But borrowers like yourself should also ensure money lenders abide by the general principles and laws set by the ministry.
That said, note that different money lenders have their own terms and conditions.
Therefore, before you settle on a money lender, make sure you are okay with its rules and regulations regarding the loan you are about to take.
Why is abiding by the money lender’s terms and conditions important?
Remember, if you take up a loan yet you did not read and agree to all the terms and conditions, it might turn out that you will lose your property if you are unable to pay a money lender in Singapore.
Of course, that is if you took a secured loan and pledged a property as collateral.
The good thing is that the Singapore government through the Ministry of Law says that all licensed money lenders in the country have to make public their loan terms and conditions to clients before they sign any deals.
4. How Much Can You Borrow From A Licensed Money Lender?
Basically, there are two types of loans you can get from a licensed money lender in Singapore – secured and unsecured loans.
For a secured loan, there is no limit on the amount you can take. In fact, the money lender can decide on how much more or less it can give you.
In many cases, the amount you can take depends on among other things, your monthly income (according to computerised receipts), your age, and of course, the value of your collateral.
As for unsecured loans, the government through the Ministry of Law has set out various money lender rules that must be followed. No licensed money lender is allowed to set its own limit.
Here is the amount you can borrow from a registered money lender in Singapore.
|Client’s Annual Income
|Singaporeans & Permanent Residents
|Foreign Nationals Residing In Singapore
|Up to $10,000
|Between $10,000 and $20,000
|At least $20,000
|6x their monthly income
|6x their monthly income
5. Interest Rates That Licensed Money Lenders Can Charge
Although there are unscrupulous loan sharks in the country, licensed money lender interest rates are already predetermined.
Therefore, it is against the law for a licensed money lender to overcharge you.
Since 1 Oct 2015, the Singapore government has ordered all licensed money lenders to impose an interest rate that does not exceed 4% per month.
What that means is if you take a loan of $10,000 from a licensed money lender in Singapore, you will be required to pay an interest that does not exceed $400 each month.
So regardless of the amount you take, as long as the loan is from a licensed money lender, you will be required to pay a maximum of 4% interest each month.
6. Fees That Licensed Money Lenders Can Charge
Prior to 1 Oct 2015, licensed money lenders in Singapore were free to impose any fees as they pleased.
After the public outcry, the Ministry of Law revised its direction regarding fees that money lenders can charge their clients.
Here is a list of all the levies you expect to pay to a licensed money lender in Singapore:
- A fee not exceeding 10% of the principal amount
- A fee that does not go beyond $60 per month for late loan repayment
- An amount as may be ordered by the court of law for the money lender to recover its money from a client
How To Tell If An Advertisement Is From A Licensed Money Lender Or An Unlicensed Money Lender
Another important date for the moneylending industry in Singapore is 1 Nov 2011. On this day, the Ministry of Law announced that all licensed money lenders in the country need to have some decorum when it comes to advertising their businesses.
Accordingly, the ministry made it clear that licensed money lenders can only advertise their business using only three main channels:
- Website(s) belonging to the registered money lender
- Print or online consumer or business directories
- The money lender’s premises (i.e. their doors, walls, gates, or even posters on their vans)
With the passing of this law, it became easy to differentiate between loan sharks and registered money lenders, since the ministry does not permit licensed money lenders to advertise their businesses using other means.
So only unlicensed lenders will use flyers, unsolicited emails, and text messages to advertise.
The ministry thus asks Singaporeans to report lenders that they suspect to be loan sharks to 1800-2255-529.
When Should You Take A Loan From A Licensed Money Lender Instead Of A Bank?
Are you unable to decide whether to take a loan from a licensed money lender or a bank?
Well, it might be difficult to make the right decision especially if you need the loan urgently.
Here are a few instances where taking a loan from a licensed money lender may be a better idea than taking a loan from a bank in Singapore:
If You Need Money Urgently
In the event you are facing an emergency, taking a loan from a money lender would be the ideal option compared to taking it from a bank.
Why? It is common knowledge that banks take longer to process the documents needed and approve the loan.
In fact, while a bank takes up to two weeks to approve your loan, it can take you a day or less to get your loan approved by a money lender.
Some registered money lenders such as U Credit can even approve a loan in 30 minutes.
If You Have No Collateral
If you are applying for a secured loan, and you realise you do not have collateral, it’d be advisable to take a loan from a registered money lender.
For your information, it is a rule that banks ask for collateral when issuing secured loans.
When It Is Evident That A Bank Will Reject Your Loan Application
It is true that you can’t tell if the banks will reject your loan application. But when it becomes evident that it will, you do not need to waste your time.
For employed people with a good monthly income, there is no reason to fear. Banks love giving loans to such people because they seem to have job security.
However, if you know that you need, say $20,000, yet you do not have a stable job, it is almost certain that the bank will turn you down.
That is when you should head to a licensed money lender to get your loan.
What To Prepare Before You Take A Loan
If you are seeking to buy a new home yet need a loan to fund your purchase, you need to ensure you have the following documents:
- Copies of your NRIC
- HDB printout
- Latest statement from CPF Ordinary Account
- All the latest credit statements
- Latest Rental Income Statement
- IRAS Property Account Summary
- Three months’ computerised payslips for the employed
- 24 months’ Notice of Assessment (employed and self-employed)
- 12 months’ CPF contributions receipts (employed and self-employed)
When refinancing an existing project, you may need to produce more documents.
What To Do Once Your Loan Has Been Approved
Once your loan has been approved, ensure that you have the right principal amount and that the licensed money lender did not charge you more than necessary.
Plan how to settle the money lender lest you are unable to pay the money lender in Singapore. But even as you start your loan repayment journey, make sure you keep these documents safe:
- A copy of the loan contract
- Copies of all the receipts
- Statement showing all your loans
- Any other document related to the loan
Risks Of Loaning From A Licensed Money Lender In Singapore
As explained, there is no cause for alarm when dealing with registered money lenders in Singapore.
As mentioned earlier, licensed money lenders tend to expedite loan processing and approval.
As such, you might end up paying a little more than you’d pay if you were obtaining a loan from the bank.
In addition, because of its short tenure, you may end up paying more when repaying the loan. To many, paying more within a short time span is a pain.
But that aside, there is no major challenge when dealing with licensed money lenders in Singapore.
Be Aware Of The Risks And Your Rights
Many may have diverse views when it comes to determining what is the risk of loaning from a licensed money lender.
But honestly speaking, dealing with a licensed money lender can be as safe as loaning from a bank – as long as you know what to look out for.
The good thing is you can get your loan within a short time as compared to when you apply for a loan from a bank. What’s more, you may not need collateral.
If you need a loan to buy or refinance your home, choose U Credit.
We will gladly help, and are ready to listen and guide you through the process. After all, we’re happy when you are happy.