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.
Interest rates as well as late payment charges are capped. Licensed money lenders are also not allowed to harass their customers.
What are some other common myths and misconceptions people often have about licensed money lenders as well as personal loan interest rates? We will share more with you below so you can make a more informed decision when planning your finances.
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% a month for personal loans.
If you are late in your loan repayment, they are also legally allowed to charge up to 4% a month in late interest for every month the loan is repaid late. This late payment interest is only charged on the amount that is overdue but not on the outstanding loan amount that is not yet due.
Other fees licensed money lenders are allowed to charge include late fees of up to $60 a month, a 10% loan processing fee, as well as legal costs ordered by the court to recover loan payments (if the claim is successful) if the borrower defaults on the loan.
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.
Are the lowest interest rates personal loans always better? People always think that ‘cheap is better’ but they forget that ‘good things are not always cheap’.
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 amount 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 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.
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:
|Borrower’s Annual Income||Singapore Citizens and Permanent Residents||Foreigners|
|Less than S$10,000||S$3,000||S$500|
|S$10,000 to S$20,000||S$3,000||S$3,000|
|S$20,000 and above||6 times of monthly income||6 times of monthly income|
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.
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.
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.
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 on how 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.
All licensed money lenders are required to have a physical office, and if you are unsure, it is always good to drop by their premises and take a look at their license certificate in person before you apply for a loan.
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.