SINGAPORE MONEY LENDERS
When looking for a personal cash loan, most people turn to banks first, have you ever wondered when a bank will loan you money?
Banks will happily grant you a personal loan when you have NO need for it. Banks also extend credits only to credit worthy individuals. Financial institutions and banks have a lot of requirements and restrictions when the yoffer personal loans. Banks do not grant personal loans to Singaporean citizens and PRs who earn less than $20,000 per year. If you are a foreigner in Singapore, the requirements are even tougher. What happens if you have bad credit and you need an urgent personal cash loan?
Apart from relatives and friends, your only legal option is to engage the help of a money lender.
Borrowing from relatives and/or friends can be daunting and embarrassing. There are quite a lot of people (who wants to save face) who rather borrow from a licensed money lender and pay the interests on the loan than ask for a favour from someone close.
Licensed Money Lenders in Singapore
In Singapore (as with almost every industry) the money lending industry is heavily regulated and moneylenders are licensed by the Registrar of Money Lenders. There are clear guidelines and restrictions on the amount of loans they can grant, the fees they can charge and even the interest rates are heavily regulated.
Any licensed moneylender found to be flouting the Money Lenders Act in Singapore will have their money lending licensed revoked. It is highly recommended that you understand and know your right as a borrower if you are intending to take out a personal cash loan from a licensed money lender.
It is worth noting that a licensed money lender in Singapore is really just like any other businessman. They want to maintain their good reputation, provide a good service, tailor their loans in accordance to the laws and make money. When licensed money lenders in Singapore “chase” their debtors, they are no different to a bank – it’s letters and letters and more reminder letters.
What should you do before approaching a licensed money lender?
Take note that you are legally obligated to fulfill any loan contracts you enter with a licensed money lender. It is advisable to borrow only what you can pay back. In Singapore, all licensed money lenders are required by law to explain the terms of loans to you clearly and in a language that you understand. You are protected by law to get a copy of the contract. Always be certain that you understand all the terms of contract which includes crucial terms such as the interest rates, applicable fees involved and the repayment terms.
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.]
Banks VS Licensed Money Lenders
Key differences between banks and money lenders include:
- Licensed money lenders offer a smaller loan amount compared to banks
- Licensed money lenders offer loans at a higher interest rate than banks (to price in the credit risk involved)
- Licensed money lenders offer loans to individuals with bad credit rating.
- Licensed money lenders offer fast personal loans turnaround time (can be as fast as a few hours)
Although the legal restriction is 2 – 4 times the borrower’s monthly income, most licensed money lenders do not offer such a high amount. They usually offer small loans to borrowers (well below the legal limit). As with all businesses, licensed money lenders compete on efficiency, with all the right paperwork available, it is even possible for a moneylender to provide the cash loan within 1 hour.
What happens if you cannot repay the loans to your money lender?
Licenses money lenders are regulated by the law. If they do not comply with the guidelines, their money lending license can be revoked. Just like banks, be prepared to get letters, SMSes and telephone calls if you cannot repay your loans. Unlike loan sharks, they cannot harass you or threaten you. However in some cases, if you cannot repay your loan, they do have the right to send a debt collector to your house.