At some point in our lives, we may need to get loans from money lenders.

Such loans may be required for unplanned emergencies, large purchases, consolidating debt, and more.

Although it may seem obvious, not every money lender out there has the best intentions.

As such, it would help to learn more about what a money lender is and what to look out for when applying for a loan.

What Is A Money Lender?

A money lender can be an individual, private or public organisation that offers funds legally in return for the funds plus interest.

In Singapore, licensed money lenders are regulated by the Registry of Moneylenders. This means the lenders must abide by the registry’s rules.

To find a legal money lender in Singapore, you have to conduct extensive research. You can scroll through a list of licensed money lenders in Singapore available at Singapore’s Ministry of Law website.

The Singapore government is aware that loan sharks or illegal dealers solicit people through advertisements via SMS, WhatsApp, or social media to solicit customers.

As such, there are set rules to what a licensed money lender may or may not do with regard to advertising.

Apart from being aware of the risk of dealing with illegal money lenders, here are things you should consider before applying for a loan.

What To Consider Before Taking Up A Loan

Taking a loan blindly will get you into more debt. For starters, consider the below points:

• Know the type of loan you need
• Look for a licensed money lender
• Consider the money lender’s interest rates
• Know your borrowing limits
• Understand loan terms
• Know how to lodge a complaint against a money lender
• Understand what happens after your loan request is granted

What Type Of Loan Do You Need?

First and foremost, decide on the type of loan you need. There are two major types of loans you can take in Singapore:

     1. A secured loan or loan with collateral: This type of loan has security attached. Examples of such a loan include:

• Mortgage loans
• Life insurance loans
• Car loans
• Secured credit cards
• Pawnshop loans

With secured loans, you can borrow more with better terms. Besides, the interest rates are lower compared to unsecured loans.

You may be granted a loan even if you have a poor credit score. Secured loans are usually repaid over a long period of time, making the loan less expensive.

However, they are much riskier to the borrower. Your money lender can repossess your assets such as your home or car in case of defaults. You will also need to thoroughly prove your repayment ability.

Unfortunately, paying the loan for a longer period may result in overall interest being more expensive in the long run.

     2. Unsecured loan: Such loans require no collateral and include:

• Personal loans
• Student loans
• Payday loans
• Credit cards
• Overdrafts

Since you don’t have any collateral to offer, you don’t have to worry about losing your assets in case of late payments. Also, you get the loan in more flexible terms.

That said, unsecured loans are quite riskier to the money lender, which translates to high interest rates. For loan processing, you may be required to show your income or your creditworthiness.

Here is another catch: If you default in payments, your credit score is likely to suffer a big drop. You may also incur additional charges.

In the worst-case scenario, you may even end up filing for bankruptcy.

With these benefits and risks in mind, you can decide on the best choice to meet your needs before you approach a money lender.

For any loan transaction, only work with a money lender that is licensed.

How To Know If A Money Lender Is Licensed

What makes a reliable money lender?

Finding a trustworthy and licensed money lender is not a walk in the park; the market is oversaturated.

The best step is to go to the Registry of Moneylenders website. Here, you get a list of all licensed money lenders with permits to work. This list is updated every month, so check the list carefully.

Note that licensed money lenders are not allowed to advertise.

If you come across a money lender that is advertising through phone calls, SMSes or on social media, you’re dealing with a quack that is not under Singapore’s Moneylenders Act.

The Act allows money lenders to only advertise through their official websites, consumer directories, or place such advertisements within their office premises.

A licensed money lender must also meet you in person to verify your identity in an approved place of business.

Thankfully, the internet can save you a lot of hassle. Go through previous clients’ testimonies to get an idea of the lender’s credibility.

Also, check your lender’s license number, office phone number and office address against what is stated in the list before signing an agreement.

Once you enter into a contract with a money lender, you will become legally bound to fulfil all the obligations stated in your contract. So before taking any step, check if your money lender is legal.

Illegal or fake money lenders:

• May not be registered in Singapore
• Ask for a copy of your Singpass ID or password.
• Have spoof websites with a different URL from that which the legal lender on the list of licensed moneylenders
• Uses threatening language if you don’t register immediately
• Ask you to sign a contract that you don’t understand
• Is willing to offer you a loan without any requirement protocols
• Do not explain the terms and conditions of the loan.
• Offer terms that are too good to be true (e.g. low-interest rates)

Interest Rates Charged By Money Lenders

The Ministry of Law in Singapore made amendments to the Moneylenders Rules to protect borrowers’ interests. Under its regulations, money lenders should not:

• Charge more than 4% nominal interest rate per month for loans. Such rates are calculated in a reducing balance method
•  In case of failure to pay on time, a late interest rate should not exceed 4% per month
• Charge a late repayment fee of more than $60 per month
• Impose administrative charges for loans that exceed 10% of your principal amount. This amount is charged once your loan is approved
• The total fees (interest rates, late payment, and administrative fees) charged to the borrower should not be more than the total principal loan approved

You must consider the money lender’s interest rates and payment process. If the period between disbursement and repayment is too short, you will likely strain your finances.

Remember that loans are subject to penalties for late payments, so avoid any lender with exaggerated interests at all costs.

Ensure to have enough information about your lender before the commencement of the loan processing.

In addition, you can compare several money lenders to see which is offering better terms and conditions.

Likewise, the lender will perform a credit check to see your credit score before giving you a quote. This allows you to know how much you are allowed to borrow.

How Much You Can Borrow

How much you borrow mostly depends on your income and whether you prefer a secured or unsecured loan.

For the former, you can borrow any amount while the latter has some restrictions.

Borrower’s annual income	Singapore residents	Foreigners in Singapore
Under $10,000	$3,000	$500
Not less than $10,000 and below $20,000	$3,000	$3,000
No less than $20,000 and above	6x monthly income	6x monthly income

When considering your borrowing limits, check your income and consumption. This may seem obvious, but to abide by the contractual terms, you must ensure that you have the ability to repay the loan.

One thing the lender looks at before granting you a loan is your income and monthly expenses. No lender wants a borrower who struggles constantly to pay off his loans.

You may need the loan, but neither do you want to place a huge burden on yourself and your family.

So borrow within your means to have an easier time meeting other financial obligations.

You can’t go wrong if you err on the side of caution when it comes to how you should settle debt with a licensed money lender.

Understand Loan Terms And Conditions

What if you are granted a loan but you don’t understand its terms and conditions?

When it comes to repayment, you must abide by the loan terms agreed by you and the lender.

According to the Singapore Moneylenders Act, a lender must give you the terms and conditions of the loan before granting any loan.

He or she must communicate in a language you fully understand.

A licensed money lender should let you know the following before any loan is granted:

• The nominal rate of interest. In Singapore, no licensed money lender should exceed 4% interest on a personal or a business loan. If this happens, you have a right to make a complaint to the Registry of Moneylenders.
• Rate of penalty in case of late interest fees.
• Loan recovery measures and any other fees to be charged (e.g. legal fees to be incurred should you default). If you fail to pay on time, your lender may seize your property, but not without giving you ample time.

• Once you enter into a contract, the money lender should maintain a detailed report about your loan.

Finally, there must be a cautionary statement that permits you to file a complaint should the lender fail to abide by these terms.

• It’s vital to review your loan terms before you sign any contract.

But what if your money lender still fails to abide by these terms?

Here is how you can make a complaint.

Lodging A Complaint Against A Money Lender

If your money lender fails to adhere to the contractual terms, you have a right to complain.

In such cases, you can lodge a complaint to the Registry of Moneylenders at 1800-2255-529.

Or you can submit the complaint on their online Feedback & Complaints page. The complaint should include vital information such as the money lender’s:

• Business name
• Contact number
• License details

You may also be required to attend an interview to give out more information on your dealings with the money lender. Once this is done, give the Registry time to investigate your complaint.

If need be, you can pursue the case through the Small Claims Tribunal. The court has the mandate to execute decisions and stop any loan transactions conducted under unfair dealings.

But if all goes well and your loan is granted under good terms, here is what you need to do.

What To Do After The Loan Is Granted

If your loan has been approved, make sure you go through the contract to understand everything.

Signing a loan contract means that you have agreed to be legally subjected to the terms and conditions stated therein.

Ensure your lender has offered the full principal amount minus the loan approval fee of not more than 10% of the principal amount as per the loan contract.

Your money lender should also provide you with the following documents:

• A copy of the signed loan contract
• A statement of account for your loans. This may include statements for every six months to clarify the monthly payments
• A dated and signed receipt as evidence of payment every time you make your loan payment

As a borrower:

• Ensure to pay your loan on time to avoid a late payment or late interest fees.
• In case you’re not in a position to pay your loan in time, negotiate the terms with your money lender to have a period extension. If all your efforts seem to hit a dead end, file for bankruptcy. This is a last resort.

Conclusion

While money lenders offer great help to those who need loans in Singapore, having the right information about what you want and what to look out for is vital.

Even if you’re in great need of money, make sure you know what you need and what the lender is really offering.

To avoid sky-high interest rates that will strain your finances every month, be sure to only engage with a licensed money lender.

For more information, speak to an experienced consultant at BST Credit today. You will know more about your options, and hence make the right decision.