It is not surprising to find many people taking a sceptical view of a personal loan or a payday loan from money lenders. One might wonder: How reliable are money lenders in Singapore? Is a licensed money lender safe to borrow from?

With so many scams going around, especially loan scams that people might have received via WhatsApp, SMS, or social media, it is common to take a more guarded approach when it comes to loans with money lenders.

However, many of the concerns surrounding licensed money lenders stem from common loan myths and misconceptions. Licensed money lenders in Singapore are regulated under Singapore’s moneylending laws and overseen by the Ministry of Law.

Interest rates as well as late payment charges are capped. Licensed money lenders are also not allowed to harass their customers.

So what are the most common licensed money lender myths that borrowers believe? Below, we debunk some of the myths of licensed money lenders and personal loan interest rates, so you can make a more informed decision when planning your finances.

Myth 1: Money Lenders Charge Exorbitant Interest Rates

This is one of the biggest misunderstandings many people still have regarding licensed money lenders today.

If you are taking a loan from an unlicensed money lender, you might be charged exorbitant rates. However, a licensed money lender is only legally allowed to charge an interest rate of up to 4% per month on personal loans.

If you are late with your loan repayment, they are also legally allowed to charge up to 4% per month in late interest for each month the loan is repaid late. This late payment interest is charged only on the amount overdue, not on the outstanding loan amount that is not yet due.

Other fees licensed money lenders may charge include late fees of up to $60 per month, a 10% loan processing fee, and legal costs ordered by the court to recover loan payments (if the claim is successful) if the borrower defaults on the loan.

These rates are all stipulated and regulated by MinLaw’s Registry of Moneylenders.

So if any money lender attempts to offer you a personal loan with loan terms and rates that exceed these legal boundaries, they are very likely an illegal money lender.

Myth 2: You Should Always Choose Loans With the Lowest Interest Rate

Are the lowest interest rates personal loans always better? Many borrowers assume that the cheapest option is automatically the best one. However, this is one of those loan myths that can lead borrowers to overlook the bigger picture.

Don’t get trapped in this mentality because there are cases when banks offer low personal loan rates (even 0% interest loans!) but impose multiple fees that end up costing more.

To get around this, before taking any loans from the banks, make sure to examine the terms and conditions, such as the effective interest rates, instead of just the advertised interest rates. Late repayment fees, early redemption penalties, and administrative fees are some possible extra fees that borrowers easily overlook.

With licensed money lenders, sometimes lower interest rates might mean a shorter loan tenure, which means you might need to repay a larger loan instalment every month. If you are financially comfortable with this, that’s okay.

However, if you find it challenging to repay this amount every month, it is better to opt for a loan with a longer loan tenure even if this means higher interest rates. This is noteworthy because you run a higher risk of being late with your payment —which could cause you to rack up high late interest fees and charges— if you struggle to repay your loan every instalment. In the end, your effort to save money might end up costing you more.

Make sure you also understand the differences between taking a personal loan with banks versus licensed money leaders and assess which one is more suitable for your needs first before applying for a loan.

Myth 3: You Need to Meet High Minimum Income Requirements to Get a Loan

While most banks in Singapore require borrowers to have a monthly income of at least $30,000 per annum to apply for a personal loan, this doesn’t apply to licensed money lenders.

Typically, authorised money lenders make personal loans accessible even for those earning less than $10,000 per annum, as long as you are between 18 and 65 years old and have a regular stream of income.

However, take note that the Registry of Moneylenders does impose a maximum amount that you can borrow from licensed money lenders in general based on your income and citizenship:

Licensed money lenders also do not require borrowers to be fully employed to be able to get a loan. As long as you have a steady stream of income, be it from part-time work, freelance work, or even rental income, you would be eligible for a personal loan. This means that one of the common licensed money lender myths—that licensed money lenders have the same income requirements as banks—is not true.

Myth 4: Money Lenders Are Dishonest Scammers

Licensed money lenders often get a bad rep because they are mistaken for loan sharks or ‘ah longs’ who harass borrowers and their families. Loan sharks are illegal money lenders, and this mix-up is one reason why so many people ask, “How reliable are money lenders in Singapore?”

However, as mentioned in the above sections, licensed money lenders have to operate under strict regulations stipulated by local authorities. They have to adhere to the Moneylenders Act and follow the legal procedures and guidelines as documented in this professional handbook by MinLaw.

While money lenders can hire the help of debt collectors to follow up with borrowers, these debt collectors are subject to the industry’s Professional Debt Recovery Practices.

Myth 5: Taking Personal Loans From Money Lenders Will Affect Your Credit Score

According to Credit Bureau Singapore (CBS), six key factors affect a person’s credit score but taking a personal loan with licensed money lenders is not one of them. However, how you manage your loan will have a significant impact on your credit score.

Here are some pointers to take note of if you don’t want your credit score to be affected negatively when taking up a personal loan:

• Avoid owing large credit amounts and/ or having multiple accounts for credit
• Avoid overextending your finances with multiple new credit facilities within a short period
• Avoid late repayment on your loans
• Avoid making multiple enquiries for new loan applications because they can be interpreted as excess credit exposures that put you at financial risk.

Wondering how you can recognise a licensed money lender from an unlicensed one? Here are ways to check a licensed money lender’s legitimacy.

Our comprehensive guide to licensed money lenders in Singapore would also give you more insights on borrowing from authorised money lenders and what you should look out for.

What Is the Best Way To Verify Licensed Money Lenders?

One of the best ways to separate fact from the many myths of licensed money lenders is to verify the lender before sharing your personal information or signing a loan contract.

Licensed money lenders are required to operate from registered business premises. You can check the Ministry of Law’s official list of licensed money lenders and verify the lender’s business details.

If you are still unsure whether a licensed money lender is safe to deal with, you may also visit the lender’s registered office to verify that you are dealing with the correct business and review the loan terms in person.

Soon Seng Credit is the top licensed money lender in Chinatown, and we are also the highest reviewed money lender in the area (with more than 2,000 reviews on Google).

We are located at People’s Park Complex, just a 2-minute walk from Chinatown MRT station.

Apply now or chat with us to arrange an appointment here!