Banks are known for their reputation, stability, and lower interest rates, making them a popular choice for loans. However, licensed money lenders in Singapore have emerged as viable alternatives, offering flexibility and faster approvals.
While banks generally have lower interest rates, money lenders regulated by the Ministry of Law can charge up to 4% interest per month.
Understanding these rates and the factors that influence them will help you make informed financial decisions. Here’s a comprehensive comparison between banks and money lenders to assist you in choosing the right option for your needs.
Banks vs. Money Lenders
When it comes to borrowing in Singapore, options primarily revolve around banks and licensed money lenders. Both financial institutions have their unique features, advantages, and interest rates that dictate their appropriateness for different borrowers.
Choosing the right institution requires a clear understanding of their regulation, processing fees, interest rates, and other factors that can impact your financial commitment.
At a Glance
|Licensed Money Lender
Monetary Authority of Singapore (MAS)
Ministry of Law
Complex process and may take weeks
More straightforward process; approval typically takes 30 minutes.
6.5% p.a. up to 20% (EIR) p.a
Capped at 4% per month
Up to 10x your monthly income; depending on the bank
Up to 6x your monthly income
3 years to 7 years
Up to 12 months
No collateral required
No collateral required
Thorough credit checks, less lenient with poor credit
More accommodating for lower credit scores
Banks in Singapore are regulated by the Monetary Authority of Singapore (MAS), ensuring they adhere to high standards of professionalism and ethical conduct. As such, banks have more stringent eligibility criteria as well as extensive document requirements. This results in a much longer application process, depending on the chosen bank’s policies.
On the other hand, licensed money lenders are overseen by the Ministry of Law, which sets rules to protect borrowers from excessive interest rates and illegal practices by loan sharks.
2. Process Speed
As previously stated, banks often have longer processing times due to their rigorous credit checks and thorough evaluation of loan applications. Conversely, licensed money lenders are known for their swift process, often providing quick loan approvals within 30 minutes and same-day cash disbursements, which can be crucial in emergencies.
3. Interest Rate
As of now, the average effective interest rate (EIR) for bank loans is around 6.5% p.a. up to 20% p.a., but this can vary based on several factors, such as loan tenure, the borrower’s credit score and annual income.
Licensed money lenders can only charge up to 4% per month. This is higher than banks because legal lenders offer short-term loans. Plus, they incur more risk by accepting borrowers with less-than-stellar credit ratings. Thanks to their flexibility and accessibility, legal lenders are attractive to borrowers who may not qualify for bank loans.
4. Loan Amount
The maximum loan amount you can borrow will depend on the bank’s policies. Using DBS Personal Loan as a benchmark, you can borrow up to 10x your monthly income. Note that the actual principal loan amount approved will depend on several factors including your income and credit score.
Licensed money lenders, while typically offering smaller loans, are often more willing to tailor the loan amount to your needs. With legal lenders, you can borrow up to 6x your monthly income.
With banks, the tenure can range between 3 years and 7 years. Note that a longer tenure may result in more affordable monthly repayments, but it can lead to higher total interest incurred.
Licensed money lenders, however, usually provide loans with shorter tenures – typically up to 12 months. As such, they are more suitable for borrowers seeking short-term financing.
The majority of personal loans available in Singapore banks are unsecured loans. This means you don’t need to provide any type of asset to the lender. This is the same for legal money lenders.
7. Credit Check
Banks require rigorous credit checks and generally serve borrowers with high credit scores. Licensed money lenders are often more lenient, providing loans to individuals with less-than-perfect credit scores.
In Singapore, personal loans are offered by various banks, including DBS Bank, Oversea-Chinese Banking Corporation (OCBC), and Standard Chartered Bank (SC), among others. The loan amount, interest rate, and loan tenure offered can vary significantly depending on the bank and the borrower’s creditworthiness.
Key features of a traditional bank personal loan, using DBS Bank as a benchmark:
- Loan amount: 10x your monthly salary
- Interest rate: as low as 3.88% p.a. (7.56% EIR p.a.)
- Processing fee: 1% of the approved loan amount
- Loan tenure: Between 6 months and 5 years
Aside from personal loans, banks also offer a wide variety of financial services, including savings accounts, credit cards, investment products, and other types of loans – mortgages, car loans, renovation loans, and more.
- Banks typically offer lower personal loan interest rates ranging between 6.5% p.a. up to 20% per annum. This can lead to significant savings over the loan tenure.
- Banks offer a wide range of personal loan amounts. Some banks offer loans as much as 10x of your salary
- Enjoy longer repayment terms of up to 7 years, depending on the bank’s policies. This can help ease cash flow concerns for borrowers.
- Personal loans can be used for almost any purpose, providing flexibility for borrowers.
- Banks have strict eligibility requirements, including minimum income and credit score thresholds. This can make it challenging for lower-income individuals or those with poor credit to qualify for a loan.
- The approval and disbursement process for a personal loan can take several days or even weeks, which might not be suitable for those in need of immediate funds.
- Like other financial institutions, banks may charge penalties for early repayment or late payments. As such, make sure to learn about the fees and charges before applying.
- Failing to repay a personal loan can significantly impact your credit score, making it harder to obtain a loan in the future.
Top Bank Loans
DBS Personal Loan
3.88% p.a (7.56% EIR p.a.)
Up to 10x your monthly salary
Up to 5 years
1% of the approved loan amount
4.7% p.a (9.46% EIR p.a.)
Up to 6x your monthly salary
12 to 60 months
1% of the loan amount
Standard Chartered CashOne Personal Loan
3.48% p.a.(6.95% EIR p.a.)
Up to 4x your monthly salary, capped at S$250,000
Up to 5 years
S$199 for the first year, S$0 for subsequent years
3.77% p.a.(6.89% EIR p.a.)
S$80,000 and above
Up to 5 years
Licensed Money Lenders
Personal loans from a licensed moneylender in Singapore can be a viable option for those who need quick access to funds or who may not qualify for bank loans. Each legal money lender is regulated by the Ministry of Law, ensuring they adhere to rules and regulations set in The Moneylenders Act.
Personal loans from licensed money lenders are typically unsecured, meaning they don’t require collateral. These loans can be used for a variety of purposes, including emergencies, paying off unexpected bills, or covering short-term cash flow issues. The key features include:
- Loan Amount: Up to 6x your monthly income
- Interest rate: Capped at 4% per month
- Loan tenure: May vary but typically up to 12 months
- Faster processing time compared to traditional banks. When you borrow with a licensed money lender, your application can be approved within 30 minutes. You may even receive the loan proceeds within the same day, perfect for when you need urgent funds.
- Enjoy less stringent credit checks. While licensed money lenders do conduct credit checks, they are usually more lenient than banks. They will look into your overall financial situation instead of focusing on your credit rating.
- Regulated interest rates, capped at 4% per month, ensuring that borrowers are not subjected to excessively high rates.
- Despite being regulated, the interest rates charged by licensed money lenders are generally higher than those of banks.
- Licensed money lenders typically offer smaller loan amounts, typically up to 6x your monthly income, compared to banks. This might not be sufficient for individuals requiring substantial financial assistance.
- Personal loans from a licensed money lender usually come with shorter repayment periods of up to 12 months. This may result in higher monthly repayments.
- Just like with bank loans, failure to repay a personal loan from a licensed money lender can negatively affect your credit score.
Where to Apply?
Don’t sign the first loan contract offered to you. It’s best to take your time in comparing loan plans, including the interest rates, terms, and fees. There are online loan comparison platforms, such as Loan Advisor, where you can easily compare loan packages from the top legal lenders. You can find our curated list of the best licensed moneylenders on our website.
To make sure that you are dealing with a licensed money lender and to avoid falling victim to loan sharks, check out the complete list of licensed money lenders on MinLaw’s website.
1. Is It Safe To Borrow From a Licensed Money Lender in Singapore?
Yes, it is safe to borrow from legal money lenders in Singapore. Licensed lenders are governed by the Ministry of Law and they follow the strict rules and regulations stipulated in the Moneylenders Act. Before you start applying, make sure to check out the complete list of licensed moneylenders on MinLaw’s website to avoid loan scams.
2. Why Are Interest Rates Higher for Licensed Money Lenders Compared to Banks?
Interest rates are higher for licensed money lenders because they are taking on more risk. They usually accommodate borrowers who may not qualify for bank loans – either due to their income level or their less-than-perfect credit score. To offset this risk, they charge higher interest rates.
3. How Much Can I Borrow From a Licensed Money Lender?
If you’re applying for a secured loan, you can borrow any amount since you will be pledging an asset. For unsecured personal loans, you can refer to the table below:
|Borrower’s annual income
|Singapore Citizens and Permanent Residents
|Foreigners residing in Singapore
Less than $10,000
At least $10,000
At least $20,000
6 times monthly income
6 times monthly income
Both banks and licensed money lenders have their unique advantages and cater to different borrower profiles. By understanding these differences,, you can make the right choice based on your financial situation and borrowing needs.
- While banks offer the advantage of lower interest rates, larger loan amounts, and a wide range of financial products, they tend to have stringent eligibility criteria and longer processing times.
- Licensed money lenders provide a viable alternative, especially for those who need quick access to cash or who may not qualify for bank loans.
- Despite the higher interest rates, legal lenders offer faster loan approvals, more lenient credit checks, and are governed by regulations that ensure fair practices.
Loan Advisor is your one-stop loan comparison platform with the latest information from the top licensed money lenders in Singapore. Easily compare loan packages with a tap of a button. Request up to three loan quotes today!