Licensed money lenders doesn’t have a good reputation with Singaporeans because of the common association with loan sharks. But that can’t really be helped because this industry indeed rose from that very need.
Their reputation is further soiled by the fact that there are loan sharks posing as licensed money lenders in an attempt to lead consumers to borrow with them.
Fortunately, the government has taken steps to clamp down on these illegal activities and constantly revised the Moneylenders Act to include more ways to protect consumers.
One such notable change is the limit at 4% interest rate for all loans. This was a huge step in protecting the consumers because there were some licensed money lenders who charge as super high interest rate before the rule came into effect.
This led to a lot of defaults and problems as the borrowers simply could not keep up with the high interest rate.
Some other notable changes include limited administrative charges to not more than 10% of the total loan amount, and late fee of not more than $60 a month.
These changes are meant to protect the consumers, but at the same time, providing clearer guidelines for the money lenders to operate as a business.
Money lenders are often compared to banks typically in the way they work, where money lenders often take the more disadvantage position.
But if you ever borrowed from a money lender, you will realised that is isn’t true most cases of the negative stories you heard or read. There are good practice licensed money lender who indeed provide great financial option during time of difficulties.
Both banks and moneylenders check your credit history of borrowing from other financial situations. In fact, moneylenders are often more forgiving in approving the loan. And they often take on higher risk by lending out loans compare to banks.
Both charges late fee for late payment. In fact, with the new regulation, moneylenders often charge lesser late fees when compared to the banks. The banks operate their late fees based on a percentage of your total loans or could be a minimum of $60-80, while the moneylenders have to cap late fee at $60 per month regardless of loan amount.
Just like in a bank, you have the right to walk away if the interest rate conditions don’t fit what you are looking for. Make sure you understand the regulations governing the industry before approaching a moneylender, and if a deal sounds too good to be true, try to do a search and verified the authenticity.
Don’t be imitated or obliged to take up a loan, once you are inside, always try to find out more information first, and verify every detail. If the moneylenders are legit and proper, they wouldn’t mind answering all your questions.
There are huge risks involved for those in the money lending business too. Loan defaults are common in the industry, and such risk explains the higher interest charge which again is now cap at 4% interest rate.
Just to give you a picture of the industry, the number of money lenders have fell about 50% since 2010. This is due to a slew of reasons such as high default rates or changes in regulations that forced some out of business.
Very often we hear and read about negative news on the licensed money lender industry on hidden fee. In fact, with the new laws and regulation in the past year. All fees are to be communicated upfront and transparent to borrowers.
All licensed money lenders are also required to ensure they explain the terms and fees to the borrowers. And all borrowers are to sign document that stated they have understood the terms and conditions from the loan officers.
We hope this helped you understand money lenders a bit more, and feel free to let us know if you have any questions!