Understanding The Regulations: Licensed Money Lenders vs. Loan Sharks
At times, resorting to moneylenders for personal loans or similar types of loans can be a solution to address urgent needs such as unexpected medical expenses arising from unforeseen circumstances, vehicle repairs, or financial setbacks. However, selecting a reputable moneylender is essential to prevent potential financial complications and legal entanglements.
Thus, it is important for you to 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 Of Licensed Money Lenders vs. Loan Sharks
| Licensed Moneylenders | Loan Sharks | |
|---|---|---|
| Interest rates per month | Regulated by law, typically capped at 4% per month. | Can be extremely high, often undisclosed and illegal. |
| Disbursement of Loans | Requires proper documentation and verification; legal process adhered to. | May offer quick cash without much paperwork, but often illegal and unsafe. |
| 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, providing some assurance of the borrower's ability to repay. | Typically none, but borrowers may be subject to exploitation. |
| Processing Fee | Legal fees are regulated and transparent, usually up to 10% of the principal of the loan. | Often no upfront fees, but hidden costs may arise 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 26 March 2024, 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.
What Types Of Loans Do Licensed Moneylenders Offer?
Personal loans
Payday loans
Business loans
Foreigner loans
Medical loans
Grab/Gojek/Taxi loans
Wedding loans
Vacation loans
Online loans
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, the interest rates of personal loans by banks are lower as compared to licensed moneylenders. Banks often have competitive rates for personal loans, especially if you have a good credit score. On the other hand, 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:
As banks typically offer higher loan amounts and longer repayment terms compared to licensed moneylenders. This could be beneficial if you need a large sum of money or prefer a longer repayment period. Moneylenders may have more flexible eligibility criteria and faster approval processes, but the loan amounts they offer are usually smaller and repayment terms shorter.
Fees and charges:
Licensed moneylenders in Singapore are regulated by the government, and there are caps on the fees they can charge. However, they may still have fees for loan processing and late payments. Banks may charge various fees such as processing fees, late payment fees, and prepayment penalties. It's essential to understand all the fees associated with a bank loan before taking it out.
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 (some examples):
- Raffles Credit
- Credit 21
- GoldStar Credit
- Accredit
Best Personal Loans in Singapore
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Standard Chartered CashOne
- Interest Rate
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- Processing Fee
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- Interest Rate
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- Processing Fee
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- Interest Rate*
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- Total Amount Payable
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- Per Month
- S$856
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- Total Amount Payable
- S$10,292
- Processing Fee
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- S$858
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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.