If you reside in Singapore and find yourself in a financial crisis, it’s likely you’ve wound up in a situation where you’ll need a personal loan from either a bank or legalised money lender in Singapore, urgently. Even though the application process for both avenues is convenient, it’s important to evaluate which option is suitable for your situation. The money lenders vs banks dilemma is a common one that many people have.
Deciding on the most viable credit option can be difficult and confusing for some. If you make the wrong choice, it could land you in further debt in the long run.
Read on to find out how to obtain the best legal loan in Singapore catered to your needs and circumstances. It’s crucial that you’re aware of the differences between loans from money lenders vs banks so you can make an informed decision.
Quick look: Money lenders vs banks
| Banks | Licensed Money Lenders | |
| Loan Amount | Up to ten times monthly income | Up to six times monthly income |
| Eligibility |
|
|
| Application Process | Up to two weeks | Less than 30 minutes |
| Late Payment Penalties | Varies |
|
| Early Termination Fees | Applicable | Not applicable |
Comparison between money lenders vs banks
Loan Amount
| Banks | Money lenders |
| Up to 10x monthly income | Up to 6x monthly income |
The loan amount is the main difference between banks and private lenders. Banks offer higher loan amounts whereas private lenders provide smaller loan amounts.
Therefore, it is a good option to approach a bank if you need a bigger loan, for instance, to start a new business venture. However, if you only need a small loan amount, private lenders might be more suitable as banks typically impose a minimum loan amount ranging from $500 to $1,000.
Banks typically loan up to 10 times your monthly income, while private lenders are only legally allowed to approve up to 6 times your monthly income. That being said, in order to qualify for up to 10 times your monthly income, you’ll need to make at least $120,000 annually!
Interest Rates
| Banks | Money lenders |
| 2.88-5.42% interest per annum | 1-4% interest per month |
Banks typically charge an advertised interest rate of around 2.88-5.42% interest per annum, while private money lenders impose 1-4% interest per month.
Take note that banks’ advertised interest rates are not as straightforward as you might think — borrowers have to pay attention to the effective interest rates to get a better idea of what the real cost of borrowing is!
The reason why the interest rates are generally higher at licensed lenders is that they take a higher risk than banks as they have less stringent requirements borrowers have to meet. Licensed lenders often extend loans to borrowers with poor credit history, unlike banks.
Eligibility
| Banks | Money lenders |
| At least 21 years old
Stable income (at least S$20,000 per annum) Good credit score |
At least 18 years old
Proof of regular income (no minimum salary) No credit score discrimination |
To get a loan from banks, you need to be 21 years old and above and have a stable income of at least S$20,000 or $30,000 per year, depending on the bank you’re borrowing from. In addition, your credit score has to be good.
On the other hand, you only need to be 18 years old to get a loan from licensed lenders. They also do not impose a minimum salary, though your income will affect the maximum loan you’re eligible for.
Whether you work full-time, part-time, freelance, or are self-employed, you can still apply for a licensed lender’s loan as long as you have a consistent source of income and can furnish proof of it.
Licensed lenders also do not practise credit score discrimination, which is a welcoming respite for those with low credit scores or poor credit history — factors that banks prioritise when determining whether or not someone is eligible for a loan.
Application Process
| Banks | Money lenders |
| Up to two weeks | Less than 30 minutes |
As banks are more stringent, the application process can take up to two weeks. They need to review your credit score, employment history, and income. The process can be especially long if you are not an existing customer of the bank.
Licensed lenders do not need to check your credit scores, hence their processing time can be a lot faster and simpler. As long as you meet the eligibility criteria and your documents are in order, your application can be approved within 30 minutes.
Thus, if you need an urgent loan, licensed lenders might be a more suitable option.
Late Payment Penalties
| Banks | Money lenders |
| Varies | Late interest: max 4% per month
Late repayment fee: max S$60 per month |
Different banks have different ways to calculate late or missed payments. Some may impose a flat rate, whereas others may charge a percentage on the full instalment or outstanding loan amount. Therefore, it is important to read your contract carefully. You might end up paying much more than the amount you owed just by missing a single payment.
Licensed lenders in Singapore are only allowed a maximum late interest of 4% per month on the overdue payment and a maximum late repayment fee of S$60 per month. In addition, if approved by the court, they can claim the legal costs associated with the recovery of the loan. These rules are mandated by the Ministry of Law.
In case you didn’t already know, licensed lenders are not allowed to harass their customers for loan repayment. They’re legally obliged to follow a strict code of ethics as detailed in their Professional Service Handbook.
Early Termination Fees
| Banks | Money lenders |
| Applicable | Not applicable |
Licensed lenders do not charge an early termination fee if you choose to pay off your loan in full ahead of your loan tenure. On the other hand, banks charge early termination fees for borrowers who clear their debts ahead of time. It is rather unfair to penalise borrowers for staying ahead of repayments, but a contract is a contract — all terms and conditions are legally binding.
Money lenders vs banks: Who should you apply for a legal loan from?
Applying for a legal loan in Singapore can be a big decision, therefore it is important to evaluate your options with care. Consider your needs and situation as everyone has unique circumstances. Being a responsible borrower will go a long way in keeping your finances healthy.
Soon Seng Credit, one of the top licensed money lenders in Chinatown, provides personal loans with one of the most competitive rates in the market. As an established loan company, we pride ourselves on providing excellent customer service and a fast, streamlined application process. Talk to us today to discuss your loan requirements or easily apply on our website in your free time.
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