What Interest Rates Can A Money Lender Charge?
Facing financial constraints or struggling to pay your bills? Perhaps you are starting a fresh chapter in your life with a new home, or a baby is on their way.
All changes in life, good or bad, come with their fair share of additional expenses. And dealing with these changes can take a toll on your personal finances.
Most people go the traditional route and take up loans from their family or friends – or if they need a huge amount – a bank.
But there is another viable option that most people often overlook – a licensed money lender. It can be a useful option if you need money urgently. This article looks at how licensed money lenders and money lender interest rates work and what you should look out for.
What Is A Licensed Money Lender?
A licensed money lender in Singapore is a financial entity that is authorised by the Singapore government to grant unsecured loans to citizens and foreigners residing in the country. Licensed money lenders essentially carry out the service of moneylending.
While it is largely safe to borrow from a licensed money lender, you should be wary of any money lender offering its unsolicited services via calls and text messages.
You should always run a background check on a licensed money lender before getting a loan. A licensed money lender’s contact details, including its license number, can be looked up on the list of licensed money lenders in Singapore.
This list is compiled by the Registry of Moneylenders, and displayed on the official website of Singapore’s Ministry of Law. It is updated regularly for the benefit of borrowers.
Is A Money Lender A Better Alternative To A Bank?
Applying for a bank loan is usually the go-to option for most people when they are struggling to pay their bills, or need a huge chunk of money for a downpayment, home renovations, wedding, or to pay off a student loan.
But the problem with a bank loan is that banks have fairly strict loan approval policies. Most banks need quite a while to process loan applications. They also require the assurance that you would be able to repay the loan on time – which is why they only grant loans to those with good credit scores.
If you are short on time, and need some instant cash, then approaching a licensed money lender is a good option for you.
Some legal money lenders can provide you with money as quickly as in an hour, without the need to look at your credit history or extensive paperwork.
Another defining feature between the two types of lenders is the interest they charge.
A licensed money lender can charge an interest rate of no more than 4% per month, while banks can charge an interest rate anywhere from 1-5% per year, depending on the loan amount and type of loan you apply for.
How Much Can You Borrow From A Licensed Money Lender?
For an unsecured loan that does not require collateral, you can get up to $3,000. This is if you are a Singaporean or permanent resident whose annual income is between less than $10,000 to less than $20,000.
Singaporeans or permanent residents whose annual incomes are more than $20,000 can secure a loan amount equivalent to six times of their monthly income.
Foreigners residing in Singapore earning an annual income of less than $10,000 are eligible for a $500 loan. If they earn between $10,000 to less than $20,000 annually, they can secure a $3,000 loan. For an annual income higher than $20,000, foreigners are eligible to secure a loan amount equivalent to six times of their monthly income.
What Fees Can A Licensed Money Lender Charge?
The Ministry of Law has capped the late, processing and administrative fees that a licensed money lender can charge a borrower for its service.
With effect from 1 Oct 2015, all licensed money lenders in Singapore can impose a late fee of not more than $60 for every month that the loan installment was paid late.
In addition to these fees, a licensed money lender cannot charge any amount greater than 10% of the principal loan amount as an administrative charge upon loan approval.
What Interest Rates Can A Licensed Money Lender Charge?
Similar to the restriction on the amount of fees that a money lender in Singapore can charge from a borrower, money lender interest rates were also capped as of 1 Oct 2015.
According to the Ministry of Law, a licensed money lender cannot charge a borrower money lender interest rates that exceed 4%. In case of a late repayment, the late interest rate charged also cannot exceed the 4% limit.
As a general rule, the interest rate and the late interest rate charged by a registered money lender in Singapore cannot exceed 4%.
Any administrative, late, and processing fees charged to a borrower must not be greater than the principal loan amount.
All the terms of the loan contract, along with the interest rate and other charges, must be communicated to a borrower clearly before the loan contract is signed.
Things To Consider Before Signing Up For A Loan From A Licensed Money Lender
- Try other financial assistance methods, such as loans from friends and family, government assistance programmes or cutting down on your costs, before you contact a licensed money lender.
- You should only resort to a licensed money lender when there are no other options of assistance available at your disposal.
- Do not rush into signing a loan contract, as some loan sharks masquerading as registered money lenders may try to lure you with attractive loan terms, misworded to trap you.
- Do your research before you reach out to a money lender. Do not respond to any unsolicited messages and calls from money lenders as they have extremely limited means of advertisement, as regulated by the Ministry of Law.
- Draw up a budget before you get your loan approved. This way you will know what and how to spend the loan amount on. The money should only be used for the right purpose.
- Negotiate on the terms of your loan to get the best deal you possibly can. This can include the repayment time period, and any additional charges.
- Remember that once you sign a loan contract, you are legally obligated to fulfil not just the principal amount that you borrowed, but also the interest, and any late and administrative fees that may be applicable on the total amount.
- Only borrow the amount that you absolutely need. Do not take a loan to elevate your lifestyle when you can’t afford to repay it.
You Have Done Your Research – What’s Next?
After you have done your research, and decided on the loan amount you need with the best licensed money lender in Singapore, you can prepare for the loan application.
Check your eligibility for the loan amount you can get from a money lender, depending on the status of your citizenship in Singapore, and your annual income.
Once you have combed through the finer details of your loan application, you can now prepare the necessary documents required for your loan approval process. These mandatory documents are your:
- Proof of residency
- Proof of employment and income
- Credit score
- CPF statements
If you are a foreigner residing in Singapore, you also need to provide your employment letter, employment pass, tenancy agreement, and bank statements.
What To Do After Your Loan Has Been Approved
Most licensed money lenders will grant you instant loans, without much hassle and formalities. But there are some things that you must immediately do once your loan is approved:
- As soon as your loan gets approved by a registered money lender, you will receive the agreed principal amount from them. Keep in mind that the money lender can deduct an upfront processing fee from the principal amount, which cannot be greater than 10% of the said amount.
- Now that you have your required amount in hand, you are obligated by law to pay back the principal loan amount, as well as the interest and any other late or administrative fees, according to the terms and timeline decided when you signed the loan contract.
In addition, make sure that you keep track of the following documents and records after getting your loan:
- Your loan agreement
- A receipt from the money lender every time you pay back a loan installment. Do not forget to check the receipts to ensure the details are correct – name, amount, date, etc
- Statement of account, which contains all relevant details of the loan contract, including payments made, payments remaining, and remaining balances of the account. The statement of account is issued every year in January and July.
- All receipts and statements of account as evidence of payment
Last but not least, pay all loan installments on time to avoid any late payment fees and late interest.
Always Be Aware Of Money Lender Interest Rates
A licensed money lender is a safe and reliable way for you to overcome your financial challenges, but it is important that you exercise caution with money lender interest rates.
Look up the money lender online, read customer reviews, and check for its authenticity. Understand all the terms of the loan before you sign off a contract.
Horison Credit offers easy loan solutions tailored specifically to your needs. We are one of the top licensed money lenders in Singapore, offering some of the most affordable interest rates and fees. Give us a call now or apply for a loan today.