What Is The Risk Of Loaning From A Licensed Money Lender?

Most of us have encountered a scenario when we need money immediately and are thinking of approaching a money lender for a loan.

It is not always scary to get a loan from a money lender, nor are all money lenders the same. For instance, a licensed or legal money lender in Singapore poses a far lower financial risk than an “Ah Long” or loan shark.

This article will discuss what is the risk of loaning from licensed money lender in Singapore. It will also advise you on how to protect yourself from moneylending risk.

What To Consider Before Taking Up A Loan

Once you decide to get a loan, you need to be aware of the potential risks of loaning from a licensed money lender in an informed and rational manner.

Banks and money lenders profit by lending you money. If you have an acceptable credit history, then they will be prepared to offer you a loan. However, that’s not really the issue.

The issue is to first establish if borrowing money is really necessary and practical. You’ve got to be really sure you need a loan, and have a realistic plan to pay it back within a reasonable loan tenure, instead of being unable to pay a money lender in Singapore.

For example, getting a loan for your dream home is a waste of time if you have no way of paying the housing installments.

A bank or licensed money lender may also offer you more credit than what you require – avoid this temptation.

Instead, focus on getting a suitable loan at the best interest rate you can find. Then repay it as quickly as you can. Don’t get stuck in a longer tenure than you need.

Before you borrow from a legal money lender in Singapore, try a simple risk assessment. Ask yourself these simple questions:

  • What’s the purpose of the loan? A mortgage for your first home, a loan to restructure an existing loan, medical expenses, and education are rational reasons – an expensive car is perhaps not.
  • How much money do you really require? As mentioned above, resist the temptation to accept a larger loan than you need.
  • How much time will be required for a full loan repayment? Your licensed money lender interest rate and monthly repayment will both be affected by this factor.
  • What is the total amount that you will pay as interest? Is the initial interest rate going to remain the same throughout the lifetime of the loan?
  • Can you comfortably cover the monthly repayments? If you lose your job, can you still cover them? Borrowers are advised to keep the sum of their monthly debt repayments under 40%.
  • Is the loan likely to be given the green light? If you have a poor credit history, that’s a clear sign that you should think twice before borrowing. Impulsive individuals may think about approaching a loan shark if they have a bad credit score. But the risk of loaning from a licensed money lender pales in comparison to the potential consequences of doing business with a black market loan shark.

What To Prepare Before You Take A Loan

Loan calculators are excellent tools that can help you analyse how much a money loan in Singapore is ultimately going to hit your wallet.

You can also check websites that compare the rates offered by different lenders, or the relevant licensed money lender’s website directly.

If your mind’s made up, prepare your NRIC, proof of employment and income, tenancy agreement, proof of residency, and Central Provident Fund (CPF) statement in advance.

Mitigate the risk of loaning from a licensed money lender in Singapore by doing your own research and preparing all the documentation needed for a loan.

When Should You Take A Loan From A Licensed Money Lender Instead Of A Bank?

There are two main situations when you may need to do business with a legal money lender in Singapore:

Firstly, you need money urgently. A financial emergency can hit any of us suddenly, and banks normally require lengthy and extensive checks before approval. If you need cash without delay, it’s no good approaching a bank – a legal money lender in Singapore is a much faster option.

Some licensed money lenders in Singapore such as Horison Credit can disburse the money in 30 minutes or 24 hours.

During emergencies, the answer to the question “what is the risk of loaning from licensed money lender?” takes a back seat as compared to the funds needed to solve the problem.

Secondly, you may have damaged your credit history enough to make a bank decline your loan request. Some situations – such as a missed credit card payment – can make quite a difference in your credit history. This is when a licensed money lender can help.

Licensed money lenders in Singapore are less rigid about their customers’ creditworthiness than banks and use a lot of common sense in their decision-making process.

How To Tell If A Money Lender Is Licensed

Doing a background check on a legal money lender in Singapore is essential to ensure you’re doing business with an approved and respected moneylending business.

If you accidentally end up dealing with an illegal money lender in Singapore, your finances – and more – will be subjected to more risks than the risk of loaning from a licensed money lender that is regulated by the government.

In order to confirm if a money lender is licensed, visit the Ministry of Law’s list of licensed money lenders. Make sure that the lender that you want to work with is on the list of lenders approved by the government, and that all its contact details match what is stated on the list.

Risks Of Dealing With A Licensed Money Lender

Unfortunately, if a money lender is licensed, this does not mean that you can simply relax and throw caution to the wind. Even licensed money lenders may break the rules, so be on guard.

Therefore, understand well the financial risk of loaning from a licensed money lender.

One of the biggest risks as a borrower is being unable to pay a money lender in Singapore, especially when you have decided to get a secured loan.

In this case, the unwelcome consequences of an unsecured loan default, such as a damaged credit score, are combined with the acute risk of losing the property that you used to secure the loan with.

Using your home as the collateral to secure a loan is one of the most potentially dangerous financial decisions that you can make. The money lender can apply to the courts and force the sale of your home to recover the money if you fail to meet your repayments.

Another point to be aware of before you sign the loan agreement is the early repayment charge that may apply if you try to pay off the loan early. So read the contract carefully.

If you have a poor credit score but still got approved for a secured loan at an interest rate that is a little too good, you should think long and hard about taking up the loan.

In other words, you must always be aware of how to settle a money lender debt without losing your property.

If you now face a forced sale of your home, get expert advice and help immediately. Approach one of the governmental or private organisations in Singapore that offer debt advice and credit counselling for borrowers in difficulty, such as Credit Counselling Singapore.

One example of a legal money lender in Singapore that will provide you with accurate information to get out of a bad situation is Horison Credit.

How Much Can You Borrow From A Licensed Money Lender?

There is no official cap on the loan amount that you can receive from a licensed money lender in Singapore if the loan is secured.

With regard to an unsecured loan, your annual salary will determine the amount. A Singaporean or permanent resident earning lower than $10,000 per annum could theoretically be lent up to $3,000.

Foreigners living in Singapore who earn below $10,000 per year are subject to a $500 loan cap.

If you earn more than $10,000 but less than $20,000, you can loan up to $3,000, no matter your citizenship.

All individuals with an annual salary of over $20,000 will be eligible to get a loan of up to six times their monthly salary.

Interest Rates That Licensed Money Lenders Can Charge

The Ministry of Law sets the licensed money lender interest rate in Singapore, so the interest rate of loaning from a licensed money lender is set at a fixed amount of 4%. This rule has been applied in Singapore since 1 Oct 2015.

Licensed money lenders in Singapore are permitted this monthly charge of 4% on the remaining loan principal – regardless of whether the loan is secured or unsecured, or the loan amount.

More importantly, a legal money lender in Singapore cannot attempt to apply this charge on the loan amount that is still outstanding but not yet due. The 4% charge is only permitted on the repayments that are already due.

Fees That Licensed Money Lenders Can Charge

A legal money lender in Singapore is entitled to charge a fee of up to 10% of the principal of the loan once it has been granted.

Licensed money lenders can ask for a late-payment fee of no more than $60 per month in the case of late loan repayments.

If a licensed money lender makes a successful claim against you for loan recovery, you must then pay the legal fees.

The final sum of all the charges from a licensed money lender must not be higher than the loan principal amount.

To give an example, if you take out a loan of $5,000, then the final fee (including any late payment charges) and the interest charged by the licensed money lender must not exceed $5,000.

What To Do Once Your Loan Has Been Approved

Once your loan is approved, here are several things you can do to lower your risk of loaning from a licensed money lender in Singapore:

  • Legal money lenders in Singapore may take a maximum amount of 10% of the loan principal upon loan approval, so check that you have been given the right amount upfront.
  • Punctual payment of your monthly repayments is essential. It’s easy to lose track of them, which will result in a late-payment fee.
  • The licensed money lender that you deal with must give you an official receipt following each repayment. Check the information carefully and don’t lose the receipts.

Choose A Reputable Licensed Money Lender

Now that you know what is the risk of loaning from licensed money lender, you need to find a good lender.

Horison Credit is one of the best licensed money lenders in Singapore. For customers that meet our very reasonable requirements, we offer speed and convenience when providing emergency loans for a variety of reasons, including payday loans.

Apart from our speed in processing fast-cash loans, we are also known for our friendliness and reliability toward our customers.

We encourage our new customers to check our licensed credentials on the Ministry of Law’s website.

Horison Credit operates with full transparency and total professionalism in Singapore, and we are waiting to serve you.

Reach out to us today or apply for a loan now.


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