What Interest Rates Can A Money Lender Charge?

Written by Shannon Wong on November 4, 2022

Most people in Singapore usually turn to money lenders when they need a loan, especially when they need a loan quickly or fail to meet the requirements of banks.

However, most of them don’t consider money lender interest rates before they take out a loan from a licensed money lender. If you intend to take out a loan, you should take note of this.

This is because if you’re not careful, fees can pile up quickly, and you might find yourself paying almost your loan principal in fees by the end of the repayment period.

This article will help you understand more about money lender interest rates, how much you can borrow, and what to do before and after taking the loan.

How Much Can You Borrow?

How much you can borrow from legal money lenders is regulated by the law. The first factor that determines how much you can borrow according to the Ministry of Law (MinLaw) is the type of loan.

You can borrow two types of loans from licensed money lenders in Singapore: secured loans and unsecured loans.

For a secured loan, you’re required to pledge collateral before the loan is granted. This way, if you fail to pay back the loan, the collateral can be liquidated and used to offset the loan. For this loan type, you can borrow as much as you like, provided you have valuable collateral to pledge.

Unsecured loans, on the other hand, do not require collateral. So the risk of the loan is on the money lender.

For this loan type, your annual income will determine how much you can borrow – either as a citizen, permanent resident, or a foreigner residing in Singapore.

Annual Income Of BorrowerSingapore Citizens And Permanent ResidentsForeigners Residing In Singapore
Less than $10,000$3,000$500
At least $10,000 but not up to $20,000$3,000$3,000
At least $20,000Up to 6x their monthly incomeUp to 6x their monthly income

What Are The Interest Rates Money Lenders Can Charge?

Borrowing money will cost you in the form of money lender interest rates even though you’re not providing any upfront investment.

This rate will vary from one licensed money lender to another. However, it is regulated by the Ministry of Law, so money lenders do not overstep their boundaries.

The maximum interest rate a money lender can charge for any loan amount is 4% per month. This is regardless of whether the loan is a secured loan or an unsecured loan.

Note that the interest rate is calculated on the outstanding loan principal, and not the total loan amount. It’s crucial to understand this so you don’t get swindled by unethical money lenders even though they are licensed.

This scenario explains it better.

Let’s say you borrowed $10,000 and the money lender interest rate is 4%. Assuming you have paid back $4,000, the interest rate you’ll pay for a given month will be charged on the $6,000 left.

Another interest rate called the late payment interest rate can be charged if you fail to pay the agreed installment on time. This maximum interest rate that can be charged for late payments is 4%. A late fee capped at $60 per month can also be charged.

When it comes to the late payment rate, this is calculated on the installment due for a given month. Say, from the previous example, you repay your $10,000 loan in $2,000 installments.

If you fail to repay the installment for a given month, the 4% late payment interest fee is charged on the $2,000 for that month.

Late payment interest cannot be charged on outstanding installments that aren’t due yet.

What Are The Fees Money Lenders Can Charge?

Other than the above interest rates charged by money lenders, you may incur other fees when you borrow from money lenders. These include:

Administrative Fees

Licensed money lenders will charge you an administrative fee for granting you a loan. This fee is capped at 10% of the loan principal by the Ministry of Law.

Be aware that you are not to provide this fee upfront when taking a loan. It is to be deducted from the loan principal once the loan has been granted.

Legal Fees

This is usually not common. However, if a money lender has to use the services of the court or a debt recovery lawyer to recover a debt, the borrower will be mandated to pay the legal fees.

Pros And Cons Of Banks And Licensed Money Lenders

Banks and licensed money lenders are the two major loan providers in Singapore. What are the benefits and drawbacks of borrowing from one or the other?

Pros: Money Lender Vs Banks

  • Faster Loan Approval

Licensed money lenders can approve your loan the same day if you meet their criteria. Some may even approve loans within 30 minutes depending on the type of loan. The approval duration for banks can be longer, ranging from one to seven days in some cases.

  • Less Strict Requirements

Money lenders don’t focus on your credit history or credit score when they grant your loans. Provided you have proof of employment and there is evidence of a stable income, in most cases, you’re good to go.

Banks have far stricter requirements, which you must meet. For instance, if your credit score is low, banks will not grant you a loan in most cases.

This is why most times, those who have low credit scores but still need loans, turn to money lenders.

  • Less Paperwork

Money lenders do not require you to fill or submit a bunch of paperwork when you apply for a loan as banks do. You can even complete most of your loan application process online when you borrow from money lenders.

  • Shorter Repayment Period

The repayment period for loans is usually short when you borrow from a licensed money lender. This means you can quickly pay off your debt and be eligible for a new loan when you need it.

Banks tend to have a longer repayment period, saddling you with debt for a longer time.

Cons: Money Lenders Vs Banks

  • Higher Interest Rate And Fees

Licensed money lender interest rates in Singapore tend to be higher than banks. The reason for this is that money lenders bear more risk since they have less strict requirements and shorter repayment periods.

  • Capped Loan Amounts

For unsecured loans, money lenders cannot lend you more than the capped amount as decided by MinLaw. Banks, on the other hand, can lend you two to six times of your monthly income – up to $200,000.

What To Consider Before Taking A Loan From A Money Lender

Before you take a loan from a money lender, consider the following.

The Type Of Loan You Want

Money lenders offer different types of loans, from personal loans, to business loans, renovation loans, and more. Research on the type of loan you want to know what its terms and conditions are.

Eligibility And Requirements

So are you eligible for a loan? Do you have all your documents in place? For you to be eligible for a loan, you must be:

  • At least 18 years old
  • Have a regular employment or an income source of at least $1,500 or $2,000 per month for Singapore citizens and permanent residents, and foreigners respectively

Singaporeans and permanent residents will need their:

  • NRIC
  • Singpass details
  • Employment letter if your employment is less than six months
  • Last three months’ payslips
  • Residency proof such as your tenancy agreement or recent bill

Foreigners residing in Singapore will need their:

  • Valid work permit or employment pass
  • Passport
  • Last three months’ payslips
  • Employment letter
  • Proof of employment
  • Bank statement
  • Singpass details

Repayment Ability

You must gauge your ability to repay the loan before you borrow. Consider your income, your expenses, and other loans you might be servicing. Only borrow what you can pay back.

Interest Rate And Fees

You don’t want to be stuck with an interest rate that will undermine your ability to pay back your loan. Consider the interest rate carefully, as well as other fees of prospective money lenders. Shop around to find the best rates.

Legal Status Of The Money Lender

Not everyone parading themselves as money lenders are licensed. Before you move forward with any money lender, check if it is on the list of licensed money lenders in Singapore.

If it isn’t, you might be dealing with a loan shark or scammer.

Keep in mind that some money lenders might be licensed, but might behave in a manner not permitted by the MinLaw. Once you notice these behaviours, do not carry on doing business with them:

  • Using abusive language or threatening you
  • Asking for your Singpass ID or password
  • Withholding your identity card or other personal documents
  • Requesting that your sign a blank or incomplete loan contract
  • Granting you a loan over the phone, email or a text – without meeting you in person
  • Giving you a loan without explaining all the terms of the loan
  • Retaining a part of the loan principal (except deductions for administrative fees capped at 10%)

What To Do After Taking The Loan

Once you have been granted the loan, ensure you have received the accurate loan principal less any deductions for administrative fees.

If the loan principal is not accurate, do not accept it, as you may have no evidence to prove that you didn’t receive the full amount.

Once you have received the correct loan principal:

1. Keep All Relevant Documents

These include:

  • A copy of the loan contract
  • Receipts for each repayment
  • Statement of accounts
  • Copies of other relevant documents

2. Repay Your Loan On Time

Not repaying your loan when it’s due will lead to more debt because you’ll have to pay late payment fees. Not only this, but the money lender can also take legal action against you, incurring legal fees.

Be Clear About Money Lender Interest Rates

Money lender interest rates are important when borrowing from money lenders. It’s advisable you borrow from money lenders that offer some of the best and most reasonable rates in Singapore, like 1AP Capital.

If you need a loan for an emergency situation, a renovation, your business, or even to get a car, we offer same-day loans at low interest rates and fees.

Contact us now to speak to a loan expert and see how we can help, or apply for a loan today.

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