Know Your Rights – Guide to Borrowing from Licensed Moneylenders in Singapore
What should you do before approaching a moneylender? Read The Money Lenders Act in Singapore!
Do consider other means of financial assistance such as those offered by the various government agencies. Please note that you are legally obligated to fulfill any loan contracts you enter with a licensed money lender. Always bear in mind to ensure you can fulfill your loan obligation (financial and contractual wise). It is always advisable to borrow only what you can repay.
The laws in Singapore requires all licensed money lenders to explain the terms of loans to you in a language you understand and are required by law to provide you with a copy of the contract. Do ensure you understand the all terms of the contract including the repayment terms, interest rates and all the applicable fees involved.
It is wise to shop around for the best possible deal you can if you need a loan.
How much can you borrow?
For secured loans, there is no limit to the loan you can secure. For unsecured loans, the amount you can borrow depends on your annual income:
You can borrow up to $3,000, if your annual income is less than $20,000;
You can borrow up to 2 months’ income, if your annual income is $20,000 or more but less than $30,000;
You can borrow up to 4 months’ income, if your annual income is $30,000 or more but less than $120,000; and
You can borrow up any amount, if your annual income is $120,000 or more.
Interest Rates That Moneylenders can charge
For loans contracted between 1 June 2012 and 30 September 2015, moneylenders are required to compute and disclose to you the Effective Interest Rate of the loan, before the loan is granted. If your annual income is less than $30,000, the interest rate which moneylenders can charge, for both secured and unsecured loans, is capped at:
13 per cent Effective Interest Rate for secured loans; and
20 per cent Effective Interest Rate for unsecured loans.
The Effective Interest Rate takes into account the compounding effect of the frequency of instalments over a one-year period. This means that Effective Interest Rate better reflects the actual cost of borrowing over a one-year period. Visit https://www.mlaw.gov.sg/content/rom to find out more about how the Effective Interest Rate is calculated from 1 June 2012.
If your annual income is $30,000 or more, the caps above are not applicable and interest rate is to be agreed upon between the moneylender and the borrower.
With effect from 1 October 2015, the maximum interest rate moneylenders can charge is 4% per month. This cap applies regardless of the borrower’s income and whether the loan is an unsecured or secured one. If a borrower fails to repay the loan on time, the maximum rate of late interest a moneylender can charge is 4% per month for each month the loan is repaid late.
The computation of interest charged on the loan must be based on the amount of principal remaining after deducting from the original principal the total payments made by or on behalf of the borrower which are appropriated to principal. [To illustrate, if X takes a loan of $10,000, and X has repaid $4,000, only the remaining $6,000 can be taken into account for the computation of interest.]
The late interest can only be charged on an amount that is repaid late. The moneylender cannot charge on amounts that are outstanding but not yet due to be repaid. [To illustrate, if X takes a loan of $10,000, and fails to pay for the first instalment of $2,000, the moneylender may charge the late interest on $2,000 but not on the remaining $8,000 as it is not due yet.]
How do I know if a moneylender is licensed?
Never borrow from unlicensed moneylenders. Ensure and verify that a moneylender is licensed by checking this website by Ministry of Law Singapore. Protect your rights by borrowing only from licensed money lenders.
When you are taking out a loan from a money lender, please do take note of the following:
- You should not give them your SingPass username and password.
- They should not use abusive language or threaten you in any manner
- You must never sign on a blank document or incomplete loan contract.
- They have no rights to retain your NRIC or any personal documents.
- You should not accept a loan without understanding the terms and conditions of the loan contract or if you did nnont receive a copy of the loan contract.
- No parts of the principal loan should be withheld for any reason.
- You should not accept a loan over the phone, email or SMS without going through the proper procedures in applying for a loan a required by law.
If you encounter any of the practice(s) above, please report the moneylender to the Registry of Moneylenders.
What are the fees that moneylenders can charge?
For loans contracted between 1 June 2012 and 30 September 2015, moneylenders are only permitted to charge six types of fees:
- For each occasion of late repayment of principal or interest;
- For each occasion the terms of the loan contract are varied at your request;
- For each dishonoured cheque issued by you;
- For each unsuccessful GIRO deduction from a bank account, as payment to the moneylender;
- For early redemption of the loan or early termination of the contract; and
- Legal costs incurred for the recovery of the loan.
Any other fees are not permitted, and are hence not enforceable by the moneylender.
With effect from 1 October 2015, all moneylenders are only permitted to impose the following charges and expenses.
- a fee not exceeding $60 for each month of late repayment;
- a fee not exceeding 10% of the principal of the loan when a loan is granted; and
- legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.
The total charges imposed by a moneylender on any loan, consisting of interest, late interest, upfront administrative and late fee also cannot exceed an amount equivalent to the principal of the loan. [To illustrate, if X takes a loan of $10,000, then the interest, late interest, 10% administrative fee and monthly $60 late fees cannot exceed $10,000.]