The regulation of money lending in Singapore has transformed what was a shady industry into a well-respected, viable option for financial assistance. Every licensed money lender in Singapore is governed by strict guidelines for the consumer’s protection. However, not all lenders are created equal.
This quick guide serves as an introduction to the industry. It shows you what to look for in a money lender and, perhaps more importantly, what to avoid. Read it carefully before you sign on the dotted line.
How to identify a legal moneylender
The Ministry of Law has created a set of rules that every licensed money lender must abide by.
Firstly, every money lending business must be registered with the Ministry of Law. You can find the complete list of approved lenders on the Ministry’s website. Always verify the status of a lender’s license before you apply for a loan from that lender. You do not want to give your personal and financial details to an illegal business.
Secondly, every lender must operate from a physical office located inside a commercial building. There is no such thing as a home-based legal money lender. Be wary of anyone who conducts their meetings with you only in public spaces such as cafes and restaurants.
A legal money lender may only advertise its services
- Outside its registered place of business
- On its website
- In business directories such as the Yellow Pages
They are specifically prohibited from soliciting business on social media platforms and through chatting apps.
The law also prohibits lenders from offering you a loan without you approaching them first. Offers for loans sent through emails and chats come from illegal businesses. If possible, you should report them to the authorities.
Interest Rates and fees
Laws relating to money lending have been formulated to balance the lenders’ business interests with reasonable terms for borrowers. All legal lenders must abide by these guidelines:
- Administrative fees to process a loan application are capped at 10% of the loan principal
- The maximum interest that a borrower may be charged is 4% per month
- Interest on late payments is limited to 4% of the amount due that month
- Late payment fees are capped at $60 per month, regardless of the amount due
- The total amount repaid, inclusive of all penalties, cannot be more than double the amount loaned
These rules are set by the government. Individual lenders may offer better deals with lower interest rates and flexible terms if your financial circumstances allow. Compare different lenders to find the best licensed money lender for your needs.
Paperwork and Transparency
One of the dead giveaways of an illegal lender is a lack of paperwork, which makes it impossible to know what you owe or how your debt is calculated. A licensed money lender must:
- Provide you with a copy of the loan agreement in a language you understand
- Specify all the terms of the loan and all associated penalties in the agreement
- Not keep any of your personal documents (NRIC, FIN card, passport, etc.) as surety
You may ask your lender for a template of the loan agreement to read before you commit to a loan.
Improve your loan approval odds
Before any company will lend money to an individual, they assess their ability to repay the loan. Banks and other major financial institutions rely almost exclusively on credit ratings in their assessments. However, licensed money lenders are more flexible.
You may qualify for a loan from a money lender even if you have a poor credit rating. Improve the odds of approval by providing as much relevant financial information as possible. This can include but is not limited to:
- Salary slips
- Bank statements
- Tax documents
- CPF statements
The more evidence that you can provide of income, the better the odds of your loan being approved.
Always shop around before you decide on a lender. Compare their rates and terms so you can make the best decision for your financial future.