People who want to borrow money from a money lending company will understandably be a little apprehensive, especially if it is their first time to do so. They have a good reason to be: money is an important matter, and there are loan sharks out there.
Thankfully, borrowing money in Singapore is safer and more convenient. But there are still some things that borrowers should know about to ensure that they are making a contract with a licensed moneylending company that will not take advantage of them.
How moneylenders start their business
Before casting any doubts, it is important to first know that the vast majority of moneylenders operate legally and honestly. People who wish to start a moneylending business are evaluated for good character and social standing. They are also required to be very familiar with the Moneylenders Act and to obtain a license from the Registrar of Moneylenders and the Monetary Authority of Singapore (MAS).
Admittedly, there are loan sharks, but they are few and far between. Regardless, the following is a guide on how borrowers can avoid dealing with loan sharks.
Ensuring that a moneylender is licensed
The country has made it easy to verify whether a moneylender has a license or not through the creation of the list of licensed Moneylenders Registry (www.ipto.gov.sg). Borrowers are highly advised to stop or avoid any deals with moneylenders that are not listed license carriers.
Borrowers should also be mindful of moneylenders – even if they are listed in the registry – that operate in a suspicious manner, such as requesting the borrower’s SingPass username or password, hastily granting loans, or exhibiting an abusive or threatening behavior. To better assure getting a good contract, borrowers may review the money lending company’s profile and track record.
How much can be borrowed
Well-performing licensed moneylending companies typically put a limit on the borrowing capacity of borrowers, particularly for unsecured loans. This is a good sign as it indicates that the company intends to reclaim their loaned money honestly and legally. In general, people earning less than S$20,000 can take an unsecured loan of up to S$3,000; those earning between S$20,000 and S$30,000 can borrow up to 2 months’ worth of their income; while those earning between S$30,000 and S$120,000 can borrow up to 4 months’ worth of their income.
Negotiating an interest rate
The interest rate for each loan will be negotiated and agreed upon by the borrower and the lending company before a contract is finalized. However, the Moneylenders Rule in Singapore has stipulated limits a lending company can require as its interest rate for certain loans. In particular, a person whose income is less than S$20,000, the maximum interest rate is 12% per annum (for secured loans) and 18% per annum (for unsecured loans).
Understanding a loan
Even with licensed and established moneylending companies, borrowers must take care to negotiate for the best terms of their loans. Borrowers should make sure to know and fully understand the payment scheme and its schedule, the loan interest and total money to be repaid, how the interest was calculated, additional fees and charges and their capacity to pay the full loan.
Borrowers should also read the Note of Contract and the terms and conditions of each loan before signing. Borrowers who are uncertain about the Note of Contract and the terms and conditions should ask the Singapore moneylender to explain it to them in plain, understandable terms or consult with an independent financial advice agency.