When it comes to personal loans, licensed money lenders are alternatives to financial institutions like banks. They have less paperwork and faster loan approvals.
As a borrower, you may feel apprehensive about working with a licensed money lender. But the Ministry of Law has put in place rules that govern all licensed money lenders in Singapore to protect borrowers.
If you are in the process of looking for funds, here are some of the vital things you need to know about moneylender rules.
How To Know If A Money Lender Is Licensed
The best way to check if a money lender is licensed is to check the list of licensed money lenders in Singapore.
The Registry of Moneylenders, which is under the purview of the Ministry of Law, updates the list monthly. This helps borrowers to avoid loan sharks while applying for personal loans.
You can easily spot unlicensed money lenders. It’s a red flag if the lender:
- Asks for your Singpass details
- Uses threatening language
- Makes you to sign a blank loan form
- Offers you the loan without supporting documents
- Approves it via phone or text
- Retains your personal documents such as your NRIC or passport
- Fails to give you a copy of your loan contract after granting the loan
Note that licensed money lenders cannot solicit people to take loans via SMS, phone calls, or emails. A legal money lender can only advertise its business on the following:
- Print or online business or consumer directories
- Its official website
- Advertisements are placed within its office or exterior (e.g. walls, windows, gates, etc)
If you encounter an unlicensed money lender, you should report it to the Registry of Moneylenders or call the police hotline at 1800-255-0000.
How Much Can You Borrow?
There is no limit on secured loans, which are less risky to licensed money lenders, as they can recover the borrower’s property in case of default.
For unsecured loans, there is no collateral. Thus, the law has set a maximum amount that borrowers can apply for. This applies to all licensed money lenders in Singapore:
- Singaporeans, permanent residents (PRs), and foreigners residing in Singapore with an annual income of less than $10,000: Maximum loan to borrow is $3,000 and $500 respectively
- Singaporeans, PRs, and foreigners residing in Singapore with an annual income of at least $10,000 and less than $20,000: Maximum loan to borrow is $3,000
- Singapore citizens, PRs, and foreigners residing in Singapore with an annual income of at least $20,000: Maximum loan is six times the monthly income
Money Lender Interest Rates And Fees
According to Singapore’s Moneylenders Act, the maximum licensed money lender interest rate should not exceed 4% per month. The rate applies to both secured and unsecured loans.
This interest is to be computed on your outstanding monthly balance.
If you default, a late interest of 4% per month will be computed based on what is overdue. It’s against the rules to charge such interest on any outstanding amount not yet due to be repaid.
In addition, a licensed money lender can impose fees as follows:
- Loan approval fees of up to 10% on the principal amount upon loan approval
- Late payment fees of up to $60 per month
- Legal fees it incurred during a successful loan recovery claim against a borrower who defaulted
Note that all the above costs imposed by a licensed money lender, including monthly interest, administrative fees, late fees and interest, cannot exceed the amount equivalent to the principal amount.
Requirements And Considerations
Before applying for a loan, be sure to understand its requirements. Your money lender in Singapore will ask you to provide the following:
- NRIC
- Proof of income and employment
- Proof of residence
- Recent credit score and past CPF statements
- Foreigners must provide an employment letter, employment pass, and bank statements
In addition, licensed money lenders consider your income level and other financial obligations. It would be best if you only borrow what you can repay to avoid late payments and defaulting.
All licensed money lenders have to abide by the Moneylenders Act in Singapore.
What Should Happen Before And After Loan Approval
Knowing what to do before and after a loan is granted helps you to know what to expect in the loan process.
Before Loan Approval
Before you sign any document, you should consider a few things:
- You should compare other financial institutions or government agencies to know more about their dealings.
- The money lender must explain the terms and conditions of your loan in a language you understand. Make sure you understand the fees and charges to apply in your situation.
With this, you will better understand how to settle with a licensed money lender.
- Know that the terms of your loan contract are legally binding. You will be required to fulfil all your financial obligations by law.
After Loan Approval
Once your loan has been granted, you should make sure that:
- Your licensed money lender has delivered the correct principal loan amount as agreed.
- Every time you make a loan payment, request and retain a statement of accounts and receipt as proof of payments made to protect you in case of payment conflicts. Besides, you will know how much you owe your money lender.
- Pay your loan on time to avoid late payments.
If a money lender is unwilling to act according to the law and starts to harass you, you can lodge a complaint to the Registry of Moneylenders. The court will do the necessary to determine if a loan transaction is unreasonable and considerably unfair.
What If You Cannot Pay The Loan?
The Registry of Moneylenders is not able to assist borrowers who are unable to meet their financial obligations.
If you are unable to pay your money lender in Singapore, try these options:
- You can try and negotiate with your money lender for an extension, or consider refinancing. You will have to pay additional fees, so that’s why you need a licensed money lender with favourable terms.
- If a borrower is unable to repay the loan, the money lender has a right to seek legal redress. In some cases, there are caveats lodged against your assets. If you agreed to have a caveat lodged on your asset, the money lender has a right to sell your property and recover the debt from the sales proceeds.
- If your debts are at least $15,000, you can file for bankruptcy. This will bar your money lender from taking legal action until you get out of bankruptcy.
- Another viable alternative to bankruptcy for total debts below $150,000 is the Debt Repayment Scheme (DRS). Here, you need an Official Assignee from the Ministry of Law. He or she will guide you on the best repayment schedule for all your outstanding debts over a certain period of time.
In such a situation, a Singapore legal money lender has no right to take legal redress – not unless it has been authorised by the court.
Only Deal With A Legitimate Money Lender
Taking a personal loan in Singapore without adequate information on licensed money lenders is extremely dangerous. The more you know about moneylender rules, the less likely you are to fall prey to loan sharks and unlicensed lenders.
You can also safeguard yourself by checking the name of the money lender you want to contact from the Registry’s list, including all its contact information.
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