Understanding The Regulations: Licensed Money Lenders vs. Loan Sharks
At times, resorting to moneylenders for personal loans can be a solution to address urgent needs such as unexpected medical expenses, vehicle repairs, or sudden financial setbacks. However, selecting a reputable moneylender is essential to prevent potential financial complications such as debt and legal entanglements. Worse, you wouldn't want to get involved with shady businesses of loan sharks.
Thus, if traditional bank loans are not an option, it is imperative to properly differentiate between the two types before approaching any moneylenders. Here’s a quick overview to guide you through the process.
Thus, if traditional bank loans are not an option, it is imperative to properly differentiate between the two types before approaching any moneylenders. Here’s a quick overview to guide you through the process.
Key Differences Between Licensed Money Lenders vs. Loan Sharks
In Singapore, licensed moneylenders and unlicensed ones, colloquially known as loan sharks, operate with distinct approaches. Licensed moneylenders are officially authorised by the Singapore government to extend financial assistance to borrowers, ensuring compliance with regulations.
Conversely, loan sharks engage in illegal activities and often resort to coercive methods to recover debts from their clients. Before engaging with any moneylender, it's prudent to consult the list of licensed moneylenders in Singapore provided by the Ministry of Law Singapore, which even includes information on moneylenders with suspended licenses.
Comparison: Licensed Money Lenders vs Loan Sharks
| Category | Licensed Moneylenders | Loan Sharks |
|---|---|---|
| Interest Rates per Month | Regulated by law, typically capped at 4% per month. | Exorbitantly high, often undisclosed and illegal. |
| Loan Disbursement | Requires proper documentation and in-person verification; adheres to legal process. | May offer quick cash without much paperwork, operating illegally and unsafely. |
| Legal Implications | Operate within the legal framework, providing protection for both parties. | Operate outside the law, leading to severe legal consequences for both borrowers and lenders. |
| Minimum Income Requirements | Usually required, ensuring borrower's ability to repay. | Typically none, but borrowers may face exploitation. |
| Processing Fee | Legal fees are regulated and transparent, usually up to 10% of the principal of the loan. | False promises of no upfront charges, but surface as hidden costs later. |
| Repayment and Loan Terms | Clear repayment terms and schedules, ensuring borrowers understand their obligations. | Repayment terms can be harsh and unclear, with potential for exploitation and violence. |
*All data above are accurate at the time of writing on 4 March 2025, and based on information from the Ministry of Law of Singapore, i.e. the maximum of 4% per month is allowed for all licensed moneylenders to charge their clients.
Is Borrowing Money From Loan Shark Illegal in Singapore?
Yes, loan sharks—colloquially known as “Ah Longs”—are considered unlicensed moneylending (UML) and are hence illegal in Singapore. Licensed moneylenders and licensed financial institutions such as banks are the only legal ways to borrow money.
Usually, loan sharks will target financially vulnerable individuals, like those unable to qualify for a legal loan but urgently need cash for emergencies. They charge exorbitant interest rates that compound aggressively, far exceeding the 4% monthly legal cap, and often fail to disclose these rates upfront. This traps borrowers in a cycle of endless debt.
Besides financial exploitation, loan sharks are also notorious for using threats, harassment, and physical violence to force repayment. Common intimidation tactics include:
- Relentless phone call harassments day and night
- Vandalising homes using red spray paint or gluing doors shut
- Threatening borrower’s family, relatives, and employers to pressure repayment
- Deploying “Ah Long” runners to intimidate borrowers in person
Unfortunately, even with careful screening, loan sharks have become more deceptive, often posing as licensed moneylenders online. They do so through advertising quick loans via WhatsApp, Telegram, Facebook, and even fake websites, luring victims with promises of “no credit checks” or “instant cash approval” with minimal paperwork. Victims are then asked to pay a “processing fee” in return—or worse, have their personal data stolen, leading to identity theft or fraudulent loans taken in their name.
What Types Of Loans Do Licensed Moneylenders Offer?
Personal loans
Payday loans
Business loans
Foreigner loans
Grab/Gojek/Taxi loans
Wedding loans
Vacation loans
Admittedly, this specific loan category is less prevalent in Singapore. Instead, options like GXS FlexiLoans are typically used for travel financing.
Online loans
Licensed Moneylenders: Real Deal or No Deal?
Still on the fence on taking up personal loans with legal money lenders instead of banks in Singapore? Here are 10 more questions to ask yourself before you apply for one.
Are Personal Loans From Banks Better Than Licensed Moneylenders?
This depends on various factors, including your individual financial situation, credit history, borrowing needs, and preferences. Here are some factors to consider as you figure out the right option.
Interest Rates
Generally, traditional bank loans offer lower interest rates as compared to licensed moneylenders. Banks are more inclined to offer competitive personal loan rates for those with a good credit score. In contrast, licensed moneylenders may charge higher interest rates to compensate for the higher risk associated with lending to individuals with poor credit or no credit history.
Loan Amount and Terms
Banks typically offer higher loan amounts and longer repayment terms compared to licensed moneylenders. This is beneficial if you need a large sum of money or prefer a longer repayment period. On the other hand, licensed moneylenders may have more flexible eligibility criteria and faster approval processes, but offer lower loan amounts with shorter repayment terms.
Fees and Charges
Licensed moneylenders in Singapore are government-regulated, with caps on fees they charge. However, they still impose penalty fees like processing fees and late payments. Similarly, banks too charge various fees such as processing fees, late payment fees, and prepayment charges. Before taking out a loan, it's essential to review all associated costs to avoid incurring penalties.
Credit Score Requirement
Usually, banks have stricter credit score requirements for personal loans compared to licensed moneylenders. If you have a poor credit score or limited credit history, you may find it easier to qualify for a loan from a licensed moneylender.
Reputation and Regulation
Banks are highly regulated financial institutions with established reputations, so naturally, borrowing from a bank may offer more security and peace of mind knowing that you're dealing with a reputable institution. Licensed moneylenders are also regulated by the government in Singapore, but it's essential to research and choose reputable lenders with positive reviews and fair lending practices like: Raffles Credit, Credit 21, GoldStar Credit, Accredit, Friday Finance, GXS, and Credible SG.
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About the Author
Once a clueless Z-llennial herself, Emma understands (and relates) all too well the struggle of juggling savings, credit cards, and everything in between. Having since garnered over 3 years of writing experience in the personal finance space, she now helps others sieve through the noise and break down money matters into clear, bite-sized insights.
Frequently Asked Questions
Do licensed moneylenders charge interest rates?
- Yes. As per Singapore's Ministry of Law regulations, licensed moneylenders are permitted to charge a maximum interest rate of 4% per month to their clients.
How much are the late payment charges by licensed moneylenders?
- As stated by the Ministry of Law in Singapore, each fee for late repayment should not surpass $60 per month and/or 10% of the principal loan amount.
How to stop loan shark harassment in Singapore?
- Report them to the authorities as soon as possible. Either call the Police hotline at 1800-255-0000, the X-Ah Long hotline at 1800-924-5664, or dial 999 if urgent police assistance is needed.
Other hotlines to seek financial help include:- Credit Counselling Singapore: 6225-5227
- National Council on Problem Gambling: 1800-6-668-668
- ComCare: 1800-222-0000
Who is the best licensed moneylender in Singapore?
- There is no best legal money lender in Singapore, it depends on your financial circumstances—loan amount required, interest rate threshold, and repayment period management.
Is it an offence to borrow from loan sharks?
- Yes, it is an offence because conducting business with or engaging in activities with loan sharks are illegal in Singapore.