What Factors Do I Take Into Account Before I Consider Applying For A Loan?

Before you consider taking a loan, be it for education, a house, or for hospital bills, you need to consider a few factors first.

There are several institutions in Singapore where you can go to borrow money for whatever reason you have, but you need to be smart about it, so as to best protect your interests. Banks, house loans, and moneylenders are all sources of loans. If you want to get a loan quickly and with little fuss, a moneylender would be your best bet.

However, moneylenders get a bad rep when it comes to their contracts, fees, and interest rates, despite the fact that the Ministry of Law has set up rules and regulations to make sure that their dealings are straightforward and cost effective.

  1. Study other agencies that offer loans before you settle on the moneylender. There are several options available, including financial assistance programs that are granted by government agencies. You can contact these agencies directly and find out about the schemes they have available, and which is most appropriate for you and your needs.
  2. If you have decided to go with a moneylender, make sure that they are licensed. You can check the list of licensed Singapore moneylenders to know who is and who isn’t legitimate.
  3. Not all moneylenders have the same terms and conditions. Check several moneylenders to know their policies, their terms and conditions, before settling on one. Taking a loan is not a decision to be rushed into, so take your time and do your research.
  4. The moneylender should give you a copy of the loan contract once you apply for a loan. This contract is important so that you will know what their terms are for repayments and the like.
  5. The moneylender should be able to explain the contract to you in words you can understand. The terms and conditions, repayment schemes, late fees, interest rates, and other fees need to be clearly explained to you while you go over the contract.
  6. Go over every minute detail in the contract before taking a loan. Make sure you understand everything stipulated in it and ask for clarification when you don’t understand any detail. Even though the Ministry of Law is making great strides in monitoring the activities of moneylenders, some unscrupulous elements still slip through the cracks, and it will be up to you catch them to justice. If you get into even more financial trouble after agreeing to a contract you did not understand, you would be the one to blame. Be on your guard.

Know your credit score, your income, your expenditure, and everything about your financial status. This is so as to ensure that you can actually work according to the terms of training loan contract you are taking. If the contract stipulates a monthly repayment of S$500 at the beginning of the month, while you collect a paycheck of S$500 at the end of every month, those terms may not be ones you can fulfill. Be sure that you can abide by the terms stated in a loan contract before you take it.

What Are The Interest Rates Moneylenders Can Charge?

When you have a pressing financial need, and you have no immediate way to address that need, you can always take a loan. Taking loans in Singapore is usually viewed as very easy or very difficult, but it all depends on what factors have forced you to take a loan, the lending institution you decide to borrow from, the terms of the contract of that loan, and the interests rates.

Moneylending is a legitimate part of Singapore’s consumer credit market, and licensed money lenders can provide loans to you if you need them. Rules have been put in place to monitor the activity of moneylenders, ensuring that they do not over charge customers on interest rates or applicable fees on loans.  Though moneylenders make up a small percentage of the credit market in Singapore, they have been known to bind customers in unfair contracts and charge high interest rates on loans.

The Singapore government has cracked down hard on moneylenders, and though the rules are less strict than they were some years ago, they are still in place to ensure that money lenders conduct fair business with their customers, and you, the person taking the loan, don’t get over charged on it.

Interest Rates of Moneylenders

First of all, you need to understand that there are two types of loans: secured loans and unsecured loans.

  • Secured loans are those which you get after putting up collateral, such as your car title, your house title, etc.
  • Unsecured loans are those that you get without putting up collateral but on the basis of your credit score. A good credit score will vouch for your ability to pay back the loan, while a bad credit score will discourage the moneylenders from approving your loan request.

Moneylenders in Singapore, as of 2015, have been mandated to calculate and share with you, the customer, the Effective Interest Rate of the loan you want to take before they give it to you. Effective Interest Rate (EIR) is computed by considering the total effect of frequent loan payments in a period of one year. The EIR is an interest system that best reflects the true cost of taking a loan in a one-year period.
With this in mind, for loans that had been contracted between June 2012 and September 2015,

  1. If you earn an annual salary of less than S$30,000, you can be charged a 13% EIR for secured loans
  2. If you earn an annual salary of less than S$30,000, you can be charged a 20% EIR for unsecured loans.
  3. As of October 2015, however, moneylenders are required to cap their interest rates at 4% a month, irrespective of the customers’ annual income, and irrespective of whether the loan is secured or unsecured.
  4. If you default in repaying your loan, the maximum interest rate that moneylenders can charge you is 4% a month.

The Interest you incur on late repayments is only applicable to the amount you haven’t paid. If you skipped paying for a month, the interest for late payments is charged on the month you skipped.

How Can I Tell Whether An Advertisement Is From A Licensed Moneylender Or An Unlicensed Moneylender?

Advertisements are a medium we use to let people know that we can fulfill certain needs and demands for them. With advertisements, you can tell what a particular company or organization can offer you and at what price. What you might not be able to tell from an advertisement is whether that company is legitimate.
Moneylending is a booming business in Singapore, and many people want to get in on the action. It can be difficult to separate the licensed moneylenders from the unlicensed money lenders, especially since even the licensed moneylenders tend to contravene the law as well. Before you can tell if you are seeing a licensed or an unlicensed advertisement, you need to be able to tell the difference between the two types of moneylenders.

 

What Is The Difference Between A Licensed And An Unlicensed Moneylender?

The easiest way to differentiate between the two types of moneylenders is to check the list of moneylenders at https://www.mlaw.gov.sg/content/rom. All licensed can be found on that site. However, it would be a good idea to avoid and report any moneylenders who:

  1. Exhibits threatening behavior towards you.
  2. Very rude and abusive
  3. Gives you a loan without following due processes, such as calling you on your cellphone and sending you an SMS to confirm your numbers and your loan application.
  4. Gives you a loan without collecting all the required documents from you, such as your income tax assessment documents.
  5. Keeps any of your personal identification documents such as your driver’s license, passport, etc.
  6. Gives you a loan without fully or clearly explaining the terms of the loan contract.
  7. Whether they are licensed or not, this is unprofessional and unlawful behavior and needs to be reported.

Moneylending Advertisements

No matter what advertisement you receive, you need to verify the information by contacting the persons behind that ad before doing business with them. Anyone can advertise one thing and do or say another.
As of 2011, advertising laws expressly state that licensed moneylenders can only advertise through three mediums:

  • Business or consumer directories – these can be print or online media
  • Websites owned by the licensed moneylender
  • Advertisements placed in, on, or around the moneylender’s place of business.

All other forms of advertisements are prohibited, including flyers, emails, messages, radio or TV ads, etc.
As such, if someone were to approach you as a moneylender with a flyer advertising their loan interest rates, they are either unlicensed or are shady licensed moneylenders. Do not respond to such advertisements, but do try to report them to the Registry, or report possible loan sharks to the police.

You should also know that it is not advisable to rely solely on the content of an advertisement from a moneylender. The advertisement is meant to make them look good, to draw you in and do business with them by taking a loan.

Once you see an ad from a moneylender, do your research. Ask around to find out more about them, get more clarification on their contract terms, and ensure that everything they do is above board before signing up with a moneylender.