What Interest Rates Can A Money Lender Charge?
If you’re considering borrowing money from a licensed money lender in Singapore, one crucial factor to keep in mind is the interest rate.
While money lender interest rates will vary from one lender to another, it’s best to understand what interest rates a money lender can charge. After which, you can borrow from the money lender with the best rates.
In this article, we uncover everything you need to know about money lender interest rates, and what you need to know before and after you’re granted a loan.
How Much Can You Borrow?
Legal money lenders are regulated by the government to give loans to Singapore citizens, permanent residents, and foreigners living in Singapore at a fee.
However, you can’t just borrow whatever amount you wish. How much you can borrow from a licensed money lender is dependent on two factors:
- Loan type
- Your annual income
The two types of loans of importance here are secured loans and unsecured loans.
Secured loans are tied to collateral, usually a valuable property of the borrower. This can be a property, car, or any other valuable asset.
In the event that the borrower fails to repay the debt, the property is liquidated and used to pay off the debt.
In some cases, the proceeds from the property may or may not exceed the debt. If it exceeds the debt, the borrower is entitled to the remainder. If it doesn’t exceed the debt, the borrower still owes the shortfall.
According to the Ministry of Law, secured loans have no capped amount. This means you can borrow any amount – provided you have a valuable asset that can be used as collateral.
On the other hand, unsecured loans are capped and dependent on the borrower’s annual income.
Your Annual Income
When it comes to unsecured loans, your annual income determines how much you can borrow.
The table below shows the capped amounts for different levels of annual income.
|Annual Income Of Borrower||Citizens And Permanent Residents Of Singapore||Citizens And Permanent Residents Of Singapore
Foreigners Residing In Singapore
|Not up to $10,000||$3,000||$500|
|At least $10,000, but not up to $20,000||$3,000||$3,000|
|At least $20,000||Up to 6x of borrower’s monthly income||Up to 6x of borrower’s monthly income|
What Are The Interest Rates Money Lenders Can Charge?
To protect the interest of borrowers and avoid exploitation by legal money lenders, the interest rate that can be charged by licensed money lenders is regulated.
As of 1 Oct 2015, the maximum interest rate that can be charged on a loan is 4%. This interest rate applies whether the loan is secured or unsecured.
In addition, if the borrower does not pay back the loan as and when it is due, the maximum late interest rate that can be charged is 4%.
Note that the interest rate is not charged as a flat rate on the principal loan amount granted to the borrower. Instead, interest is computed on the outstanding principal.
For instance, if you borrow $20,000, and have paid back $10,000, interest is charged on the $10,000 left.
Also, for late payment, the interest is only charged on the amount that is to be paid back for any given month the borrower defaults.
Let’s say you pay your $20,000 loan in $2,000 installments every month. If you fail to pay for a particular month, the late payment interest fee will only be charged on the $2,000 due for that month.
Late payment interest cannot be charged on outstanding installments that aren’t due yet.
Keep in mind that licensed money lender interest rates will vary between different lenders. It’s advisable that you compare the interest rates of various lenders before taking out a loan.
What Are The Fees Money Lenders Can Charge?
Aside from interest rates, money lenders can also charge some fees. Again, these fees are regulated and capped by the Ministry of Law.
Legal money lenders are only allowed to impose the following fees:
- 4% late payment fee not exceeding $60 for each month of late payment
- Administrative fee not exceeding 10% of the loan principal when granted
- Legal fees if the money lender has to use the services of the court or attorneys to recover the loan
However, the monthly interest rate, late interest rate and administrative fee must not exceed the loan amount.
Pros And Cons Of Banks And Licensed Money Lenders
What’s the difference between borrowing from banks and money lenders? Which is the best option?
To be fair, there is no best option when it comes to either borrowing from banks or licensed money lenders in Singapore. It depends on each borrower’s specific situation.
For instance, money lenders tend to target those that may find it difficult to borrow from banks. This could be because of a low credit score or a low annual income.
Because of the risks involved, money lenders tend to charge a higher interest rate than banks would.
The best step is to analyse the pros and cons of each loan provider and determine if they are favourable to you.
Here are pros and cons of borrowing from banks and licensed money lenders.
The maximum amount for unsecured loans you can borrow from legal money lenders is up six times your monthly income if you earn at least $20,000. Banks, on the other hand, can lend you two to six times of your monthly income up to $200,000.
However, money lenders can still grant you a loan even if your annual income falls below $20,000.
But it’s typical for banks to reject your loan application if your annual income falls below $20,000 for Singapore citizens or $45,000 for foreigners.
Banks rely heavily on a borrower’s credit score or credit history when reviewing loan applications. If you’re a high-risk borrower, it may be impossible to get a loan from the bank.
Licensed money lenders do not focus on your credit score. Provided you have a stable income with employment proof, you can be granted a loan if you meet the annual income criteria.
Money lenders have a quicker loan approval duration than banks. It’s typical for money lenders to grant you a loan in 30 minutes to 24 hours once you have satisfied all of the requirements.
Banks have a longer turnaround time, and the duration for approval can range from one to seven days, depending on the type of loan you’re soliciting for.
Because money lenders’ loans tend to be smaller compared to banks, they also have shorter repayment periods.
This means you can quickly pay off your loan, and be debt-free in a short while.
Banks tend to have longer repayment periods. While this can be a good thing for some people, it means you’ll be saddled with the debt for longer, and may be ineligible for new loans when you need them.
Banks typically have lower interest rates compared to money lenders. This is because money lenders can grant loans without considering a borrower’s credit score or history. This risk is cushioned by the higher interest rate.
|Licensed Money Lenders||Banks|
|Loan Amount||Up to 6x of borrower’s monthly income for at least $20,000 annual income||2-6x monthly income up to $200,000|
|Importance Of Credit Score||Low||High|
|Speed Of Loan Approval||Fast (30 mins to 24 hours)||One to seven days|
|Interest Rate||High, up to 4%||Low, 1-2%|
What To Consider Before Taking A Loan From A Money Lender
Before taking a loan from a money lender, here are some vital things to consider.
Your Ability To Repay The Loan
The obligation to repay the loan is fully on you. So it’s wise to consider what your income is, and if you have other outstanding debts you’re servicing.
As a rule of thumb, only borrow what you can pay back.
Understand The Terms Of The Contract
Before you sign the loan contract, make sure you understand all the terms of the contract. Are you pledging your property as collateral? Do you understand the risks? What other caveats are in the agreement?
Money lenders are required by law to explain the contract terms to you clearly, so ask questions for areas you don’t understand.
Compare Money Lenders
Some money lenders can provide you with the best interest rates and fees compared to others. At BST Credit, we offer affordable interest rates and fees on all our loans.
Check If The Money Lender Is Licensed
Not everyone claiming to be a money lender is licensed by the Ministry of Law.
To avoid falling into the hands of loan scams, check this list of licensed money lenders in Singapore. If the money lender isn’t listed there, it is likely a scammer.
What To Do After Taking The Loan
Once the money lender has granted your loan, here’s a checklist of what to do next.
- Ensure you have received the accurate loan principal. Only a maximum of 10% for administrative fees is permitted to be deducted.
- Keep a copy of the loan contract.
- Ensure your pay each installment on time to avoid late payment fees.
- Request for receipts for each repayment.
- Keep all receipts for repayments and statements of account as evidence.
In Need of A Quick Loan?
Maybe you need a loan to finance your wedding, pay the downpayment for your new property, get a car, or enjoy a romantic vacation with your loved one.
Whatever the reason, BST Credit is an established licensed money lender in Singapore that offers quick loans at competitive interest rates.
Contact us today to speak with a loan expert about your needs, or apply for a loan here.