What Is The Risk Of Taking A Loan From A Licensed Money Lender?
When you don’t have enough money to pay off your expenses, one of the best options is to take out a loan from a licensed money lender.
Licensed money lenders have faster approvals and don’t have as strict approval processes as banks.
But what is the risk of loaning from a licensed money lender in Singapore?
Every licensed money lender in Singapore operates under the Ministry of Law. Therefore, it is safe to borrow from them instead of loan sharks.
In this article, you will learn the things you need to consider before taking a loan, how to check if you are dealing with a legal lender, the risk of loaning from a licensed money lender, and much more.
What To Consider Before Taking Up A Loan
The Type Of Loan You Want
You can take out a secured or unsecured loan in Singapore from a licensed money lender.
Also, these two loan types come in different forms, such as car loans, education loans, or wedding loans.
Therefore, it would be good to consider your needs in order to get the best loan option.
If it is an emergency, you can go for a personal loan. On the other hand, if you have several loans, you can decide to take up a debt consolidation loan.
Do you have all it takes to qualify for a money loan? Money lenders may require you to fulfil some terms and provide relevant documents to get a loan.
For example, you can get your credit report from Credit Bureau Singapore (CBS) to see your credit rating.
Even though most licensed money lenders do not check your credit rating, some do not offer loans to borrowers with bad ratings.
You will also need to provide relevant documents such as your NRIC, and proof of income and employment.
Loan Terms And Conditions
Another essential detail to consider before borrowing from a money lender is the loan terms and conditions.
How much is the interest rate, administrative fee, late interest, and late fees?
Always ensure that you understand every requirement before you sign the loan contract. This is because you must abide by the terms and conditions once you enter a contract.
Your Financial Ability
When you borrow a money loan, you have to repay it. Therefore, think of how to settle your money lender when planning to get the loan.
Consider how much you can pay back per month depending on your income.
This will help you to avoid chaos because if you are unable to pay your money lender in Singapore, it can sue you.
Legality Of The Money Lender
Finally, you need to check up on the money lender you are dealing with. Is it licensed or not?
The best way to tell is to check the list of licensed money lenders in Singapore provided by the Registry of Moneylenders.
How To Tell If A Money Lender Is Licensed
As you ask yourself what is the risk of loaning from a licensed money lender, it is essential to check if you are working with a legal money lender or not.
This is because loan scammers have found their way into the market, and you can be a victim if you’re not careful.
How can you tell if a money lender is licensed in Singapore?
The first thing to do is to refer to the list provided by the Ministry of Law on the official website.
If a money lender appears on the list, you can work with it after verifying its contact details and address against what is provided on the list.
You can also tell something is off if you see these signs:
- The money lender is advertising via text messages, emails, flyers, or phone calls. Licensed money lenders are only allowed to advertise through their official websites, business or consumer directories, and adverts placed within or on the exterior of their business premises.
- The money lender gives out the loan without explaining all the terms in a language you can understand
- The money lender uses abusive language or insults you
- The lender withholds part of the principal amount you agreed on for whatever reason
- The money lender wants to retain your personal documents such as your NRIC, passport, or driver’s licence
How Much Can You Borrow From A Licensed Money Lender?
If you want a secured loan in Singapore, you can borrow any amount from a legal money lender.
However, if you are looking at an unsecured loan, your annual income determines how much you can borrow.
Here is a table to help you understand better:
|Annual Income||Singapore Citizens and Permanent Residents||Foreigners Living In Singapore|
|Less than $10,000||$3,000||$500|
|At least $10,000 and less than $20,000||$3,000||$3,000|
|At least $20,000||6x your monthly income||6x your monthly income|
Interest Rates That Licensed Money Lenders Can Charge
According to the Ministry of Law, the maximum licensed money lender interest rate is 4% per month.
This applies regardless of whether the borrower takes out secured or unsecured loans. His or her salary also doesn’t matter.
A legal money lender should charge the interest based on the amount of principal remaining after deducting the total payments that the borrower has made.
For example, if borrower X has taken a loan worth $6,000 and they have already repaid $3,000, the lender should charge interest on the remaining $3,000.
On the other hand, if the borrower is unable to pay a money lender in Singapore on time, he can be charged a maximum late interest of 4% per month.
This only applies to the amount repaid late. Therefore, the lender cannot charge a late interest on an outstanding balance due for repayment.
Fees That Licensed Money Lenders Can Charge
Apart from the interest rates, licensed money lenders charge some fees when giving out loans.
The law allows them to charge a fee not more than $60 per month for late payments.
Also, when the loan is granted, they can ask for a fee of not more than 10% of the principal amount for administrative purposes.
Lastly, they can charge a borrower the legal expenses according to the court order for any successful claim when trying to recover their loans.
In summary, the total interest and fees, that is – the loan interest, late interest, late fee, and administrative fee, should not exceed the principal amount the borrower receives.
What To Prepare Before You Take A Loan
Before approaching a legal money lender in Singapore, it is crucial to prepare the relevant documents. This will help speed up the approval process once you meet with your lender.
Here are the documents you need to have in place:
Proof Of Identity
You can provide your Singapore NRIC, passport, or employment pass. This is to prove you are the person taking out the loan.
Proof Of Income
This is important to money lenders because they determine the amount of loan you qualify for depending on your annual income.
You can give a contribution history statement to your Central Provident Fund (CPF) for the last 12 months, your latest computerised payslip, or the latest income tax Notice of Assessment.
If you are applying for a bank loan, you can provide salary crediting into the lender’s bank account.
Proof Of Address
This refers to a document that shows your place of residence, for example, utility bills with your residential address.
Proof Of Current Credit Score
This is applicable if you want to apply for a bank loan because most licensed money lenders will consider your income instead of your credit rating.
However, it is crucial to work on your credit score (especially if it is bad) before you make any loan application.
You can purchase a copy of your credit history from the Credit Bureau Singapore (CBS) or Moneylenders Credit Bureau (MLCB) to see your rating.
Apart from these documents, there are other things that you need to prepare. These include:
Since you already know the loan type and how much you wish to borrow, you can work on a repayment plan.
You can do this depending on your monthly income and financial capability. The plan will also make things easier when approaching a licensed money lender.
Another critical thing to think about before taking a loan is how you intend to use it.
Plan how you will spend every coin. It can be frustrating to pay back money you cannot account for.
When Should You Take A Loan From A Licensed Money Lender Instead Of A Bank?
When You Have An Emergency
Emergencies are situations that need cash urgently, such as medical bills.
In such situations, you can borrow from a legal money lender because the approval process is faster than that of a bank.
Usually, you can get a money loan from licensed money lenders in less than 30 minutes when you have the relevant documents.
On the other hand, the bank process can take a week or even a month.
When You Cannot Meet The Bank’s Requirements
Singapore’s banks and licensed money lenders use various criteria to check your eligibility. They determine your eligibility through the documents you provide.
However, banks have more requirements when it comes to loan qualification criteria.
For example, banks must source your credit report to check your credit rating. If you have a bad score, they will reject your loan application.
They also consider your employment history, financial state, and income.
On the other hand, licensed money lenders give some leeway when checking on your eligibility. Most of them won’t consider your credit score.
They may also ignore your lower minimal income per year. As a result, you can easily qualify for a loan from a legal money lender in Singapore.
Risks Of Loaning With A Licensed Money Lender
Many borrowers in Singapore may consider all money lenders the same.
As a result, they view licensed money lenders as unlicensed money lenders. However, the two are completely different.
Legal money lenders operate under the Ministry of Law in Singapore. Therefore, they give out loans following the guidelines provided.
This means they cannot charge you more than the outlined interest and fees.
On the other hand, loan sharks aren’t regulated by any authority. As a result, they take advantage of borrowers by overcharging them and even harassing them.
So what is the risk of loaning from a licensed money lender?
It is safe to borrow from a legal money lender in Singapore. They operate under the law; therefore, going contrary to it leads to a fine.
You can report any unfair practices or contracts by a licensed money lender to the Registry of Moneylenders via this telephone number: 1800-2255-529.
What To Do Once Your Loan Has Been Approved
After your licensed money lender approves your loan, do the following:
First, ensure that you receive the correct principal amount from the lender. Remember that it should not charge you more than 10% of the principal amount for your loan approval fee.
Always ensure you repay your loan on time. Plan how to settle your money lender to avoid late interest and fees penalties.
Timely repayments will also help to build your credit ratings.
If you are struggling to make your monthly installments, you can request an extension period from the licensed lender.
Also, ensure that you keep all the relevant documents safely. Get all the repayment receipts and statements of accounts from the lender and check if they are correct.
Keep them safely because they act as documentation and evidence of your repayments.
Most of us have to borrow money at some point in our lives for emergencies.
Usually, getting a loan from a licensed money lender is the best alternative. This is because the approval process is faster, and the rejection rate is low compared to borrowing from a bank.
However, some may ask “what is the risk of loaning from a licensed money lender?”
Remember that the Ministry of Law in Singapore governs all legal money lenders. They cannot do anything outside the provided guidelines or they will have to face the law.
Therefore, you are in safe hands when you enter into a contract with any licensed money lender. You can report the lender for any illegal moneylending activity.
If you are looking forward to dealing with a legal money lender in Singapore, you can contact BST Credit. We are a licensed lender that has all the loan types you need.