Bank interest rates in Singapore vary between 5% and 7%. Licensed moneylenders offer loans to Singapore residents at much lower rates.
It is tough to differentiate between legal and illegal moneylenders in Singapore, as both have the same face value. Illegal moneylenders are often found operating without a license, so it can be difficult for people to spot them.
However, you can fall into several finance-based scams by borrowing from an unlicensed moneylender who is not on the list of licensed money lender companies. Here are ten tips borrowers should consider when choosing a moneylender.
Protection Under the Moneylenders Act
As far as protection is concerned, licensed moneylenders are protected by the Money Lenders Act. Unlicensed lenders are not covered because they do not have licenses. So always go for licensed moneylenders only.
Borrowers enjoy exceptional protection from the government. You can even file complaints and seek help from the government if the licensed money lender does not comply with their terms.
These protective benefits are not available on borrowing from unlicensed moneylenders.
The Annual Percentage Rate (APR) of Interest You pay
When borrowing from a licensed lender, the APR of interest is fixed at 0.80%. Unlicensed moneylenders can increase their rates, so it will be more expensive for you to borrow from them (due to the higher risk they are taking).
Licensed moneylenders cannot increase their interest rates without government permission. Also, these authorized lenders on the list of licensed money lenders offer interest rate transparency, so you will not be up for surprises later on.
The Small Loan Act
The Small Loan Act regulates that moneylenders cannot charge an annual percentage rate (APR) of interest exceeding 3%. So if you find someone charging an APR higher than 3%, they are undoubtedly operating illegally.
The Amount They Can Lend
Moneylenders have a cap on how much they can lend out. Under the Moneylender’s Act, licensed lenders are only allowed to lend up to $5000 as a single loan.
In this case, you can borrow the maximum sum from a single lender is $15,000. This convenience will save you from the hassle of applying for multiple loans or going to different banks and moneylenders.
Their Interest Rates
Licensed moneylenders cannot charge more than 28% (before factoring in other fees such as late payment and processing fee). If they charge higher interest rates, it can signify that the person is an unlicensed moneylender.
The Repayment Period and Loan Tenure
Moneylenders cannot lend you for more than 12 months, and your loan tenure must not exceed two years. Anything beyond these periods will indeed point out to you being served by an illegal moneylender. Read the Singapore Government’s guidelines in detail to have a better understanding.
Ask if They Offer You Guarantee or Collateral Loans
Unlicensed lenders are not allowed by law to offer loans with guarantees or collateral. If a lender has asked you to offer collateral or guarantee, they are probably operating illegally. Avoid borrowing from this lender.
Beware if the Lender Asks for Criminal Guarantors
Licensed moneylenders in Singapore are not allowed to ask for a guarantor who has criminal records. Licensed lenders can only ask for guarantors with clean criminal records and those whose income must be at least two times the monthly repayments of the loan sum borrowed.
So if someone asks you to find such a person as a guarantor, it will mean that they are an unlicensed moneylender.
It could be illegal if they operate from their home as it is against the law to operate from residential premises (home). Licensed moneylenders can only operate from their offices. These lenders are also not allowed to advertise their services except on owned media and other government-specified platforms.
Their Operating Hours
Licensed moneylenders are allowed to open their business for a maximum of eight hours per day and five days a week.
If they request you to come after that, it could signify that they are operating illegally. If you are suspicious about the lender, do not hesitate to ask the lender directly if they have a license or not before you decide to borrow from them.
What Else to Know?
Unlicensed money lenders are not allowed to conduct face-to-face interviews with borrowers. They are not supposed to direct the market either, but they have resorted to this marketing strategy due to the high demand for loans.
If you suspect someone is an illegal moneylender, report them immediately via SPF’s consumer complaint portal. If you’re keen on saving costs for your financial needs, hire a professional who can help you compare and apply for low-interest rate personal loans in Singapore today.