Everybody needs help at some point to tide over financial challenges – whether to cover a big-ticket purchase, pay credit card bills, or for medical emergencies. This is especially true with the rising costs of living in Singapore. But no matter how tough things get, never borrow money from unlicensed moneylenders.
Unlike traditional banks and licensed money lending agencies, illegal money lenders or loan sharks may use harassment, intimidation, violence, and other illegal methods when collecting a debt. This, on top of sky-high interest rates, makes it impossible to repay the debt.
In fact, a recent report detailed how a family in Singapore was threatened after their house helper borrowed S$1,000 from illegal moneylenders. To stay away from loan sharks, you need to know how they operate and how to properly evaluate the credibility of a licensed money lender.
Is It Illegal To Lend Money in Singapore?
If you’re short on cash, you can consider borrowing money from family or friends. They can draw an IOU that details the terms, amount, and other relevant information. But are IOUs legal?
Yes, an IOU is a simple loan contract that stipulates the terms of the loan. Note that these are different from promissory notes which are governed by more formal requirements under the Bills of Exchange Act.
Additionally, lending money to and from friends and family is allowed. However, such personal loans must not fall into the definition of “money lending” or “moneylending business” as defined in the Moneylenders Act.
Is Being a Money Lender Illegal?
The Moneylenders Act does not prohibit the act of moneylending. Lending money to family or friends does not constitute the business of moneylending – unless there is a system and continuity about the transaction. That said, loaning money to family or friends is not illegal and does not require a license.
However, a person or entity whose business is that of moneylending or who carries on, advertises, announces himself or holds himself out in any way as carrying on that business, must have a license to operate. To learn how to apply for a moneylending license, you can click here.
Note that conducting the business of moneylending without a license is illegal and punishable by law. Do not, in any circumstances, borrow money from or deal with them.
Licensed vs Unlicensed Moneylenders
First of all, licensed moneylenders must be registered with the Ministry of Law. You can find the complete list of licensed moneylenders on MinLaw’s website. If the lender is not on the list, you may be dealing with an illegal lender or loan shark.
Provide a loan contract complete with details, including the loan terms, amount, tenure, and interest rate
Will not give you a loan contract or will have you sign a blank note
Obligated to thoroughly explain the terms and conditions of the loan in a language you understand before you sign the contract
Fail to explain the terms
Charge an interest rate of not more than 4% per month. This cap applies regardless of your income or whether the loan is secured or unsecured
Charge extremely high interest rates
Can only charge a processing fee of not more than 10% of the principal loan amount when the loan is granted
Will ask for a processing fee upfront before the loan is approved
Only advertise via three channels: directories, own websites, and within their business premises
Advertise via other channels, such as flyers, WhatsApp messages, emails, and social media
You can loan up to 6 times your monthly income if you have an annual income of at least S$20,000
There is no limit to the loan amount and will allow you to borrow more than what’s legally allowed.
How Loan Sharks in Singapore Operate?
Illegal moneylenders imitate the style of licensed moneylenders or create duplicate certificates. That said, innocent and unsuspecting borrowers may be easily tricked.
If you have a doubt about the legitimacy of the money lender you are approaching, you must verify them via the Ministry of Law of Singapore. On MinLaw’s website, you will see the complete list of licensed money lenders.
1. Send Messages and Advertisements Via SMS or WhatsApp
Loan sharks are known to send unsolicited SMS or WhatsApp messages to trick you into a loan scam. They advertise loan plans that are too good to be true. You may also find these advertisements on social media platforms as well.
Note that licensed money lenders are only limited to advertising in three channels:
- Business or consumer directories (in print or online media)
- Websites belonging exclusively to the licensed money lender
- Advertisements placed within or on the exterior of the lender’s business premises.
All other means of advertisement are prohibited.
2. Provide Loans Without Face-to-Face Verification
Illegal money lenders are also known to grant loans through emails or phone calls. They do not require face-to-face verification. That said, if a lender offers instant cash without doing due diligence, you might be dealing with a loan shark.
The law requires licensed moneylenders to explain the terms and conditions of the loan to you in a language you understand. Additionally, face-to-face meetings and identity verification are required.
3. Will Collect or Request Sensitive Customer Information
Unlicensed lenders will also ask for your SingPass user ID and/or password. Some may even try to retain your NRIC card or any other personal ID documents, such as a driver’s license, passport, or work permit.
If you’re borrowing from a legal lender, you’ll need to send an application form via the legal lender’s official website. Wait for your appointment with the moneylender before you can deliver the required document criteria.
Licensed moneylenders do not retain consumers’ confidential information or their records either.
4. Disburse the Loan Amount Without a Loan Contract
Loan sharks will immediately provide the loan amount without giving you a copy of your loan contract. Or they may ask you to sign a blank or incomplete loan contract.
A licensed moneylender will require both parties to sign a contract detailing the loan they’ve applied for, the amount borrowed, the terms of repayment, and the fees the customer must pay. This is the only document that you will be signing and keeping as evidence of your transaction.
When any party violates the deal, it will be covered by the law. All the procedures are following requirements from the government.
5. Charge Sky-High Rates and Extra Fees
Illegal money lenders will change interest rates exceeding 4% per month – which is the allowed cap and will apply extra payments not applicable to the loan. Loan sharks will even charge processing fees even before the loan is granted.
Note that licensed lenders can only charge up to a 4% interest rate per month, regardless of your income or whether the loan is secured or unsecured. Additionally, they are only allowed to charge the following fees:
- $60 per month late fee
- 10% of the principal upfront (the amount borrowed)
- Legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.
6. Lend You More Than 6x Your Monthly Salary
Illegal lenders will lend you any amount but they also charge exorbitant fees, making it impossible to repay the loan.
When you’re borrowing from a legal money lender, you can only borrow up to 6x of your monthly income for unsecured loans. Check out the illustration below:
How Does Singapore Deal With Illegal Money Lenders?
If you are suffering from loan shark harassment, immediately report them to the police. Seek police protection and assistance by calling 999 or dialing the X-Ah Long hotline at 1800-924-5664. On top of that, you can also report the money lender to the Registry of Moneylenders at 1800-2255-529.
Stay away from loan sharks and do not work with or assist them in any way.
Here are other ways to deal with loan sharks:
1. Avoid Directly Interacting with Them
Ignoring them is the only way to cope with loan sharks and unlicensed money lenders. At first, these loan sharks may seem sympathetic to your financial need, but they will charge your loan with unlawful high-interest rates when you negotiate loans with them.
Note that the maximum interest rate which approved money lenders can charge for your reference is 4% per month.
2. Avoid Being Persuaded by Their Offer
Don’t take advantage of a loan from a loan shark or an unlicensed moneylender, no matter how desperate you might be in trying to get money. Obtaining a loan from them would place you in a financial trap that you can consider difficult to get out of.
3. Understand Where to Lodge a Complaint
As a member of the public, if you feel uneasy or threatened by the approach of an illegal moneylender, it is advisable that you lodge a complaint through the I-Witness portal at https://www.police.gov.sg/iwitness or call the police hotline at 1800-255-0000.
4. Obtain Proper Financial Advice from Experts
You can seek help from financial experts who can give you advice on how to borrow money properly, so you can have a better handle on your loans and financial status. Also, they can teach you how to properly manage your debt, expenses, and income.
You can seek assistance from these government agencies:
- Credit Counselling Singapore: 6225-5227 (www.ccs.org.sg)
- National Council on Problem Gambling: 1800-6-668-668 (www.ncpg.org.sg)
- ComCare: 1800-222-0000 (www.msf.gov.sg/comcare)
If you are still unsure about the moneylender you’re dealing with, then you can check reliable loan comparison sites and Google reviews. Lastly, the surest way to check is to visit the Singapore Ministry of Law website.
Is Borrowing Money From Loan Shark Illegal Singapore?
It is illegal to deal with loan sharks or assist in their money lending business. Under the Moneylenders Act, opening a bank account or giving away an ATM card along with the PIN is considered as assisting a loan shark in conducting its illegal money lending business.
Additionally, making bank transfers via ATM and/or internet banking on behalf of these loan sharks is also considered as assisting an unlicensed money lender.
For assisting in the business of unlicensed moneylending:
- Fine between S$30,000 and S$300,000
- Imprisonment for a term of up to four years; and
- Caning of up to six strokes
For acting on behalf of an unlicensed moneylender to commit harassment:
- Imprisonment for a term of up to 5 years
- Fine between S$5,000 and S$50,000; and
- Caning of between 3 and 6 strokes
Here are other reasons why you shouldn’t borrow from loan sharks:
- They charge exorbitant interest rates of up to 20% to 60% per month.
- They use abusive language or behave in a threatening manner toward you
- They will stalk you, your family, or your friends when collecting debts
- They will withhold a part of your principal loan amount
- Lastly, they will trick you into borrowing more money which will land you in deeper debt
How to Seek Help Against Loan Sharks?
Stay calm and don’t let them get away with it. Immediately call the police and they’ll be able to protect your life, property, or both.
Here’s what you can do:
- Call ‘999’ or the X-Ah Long hotline at 1800-924-5664
- Or submit information online at www.police.gov.sg/iwitness
If you find yourself in need of money, do not immediately respond to the advertisements you see online or around you because they may not be the solution you are looking for. Before borrowing, research and learn all about the moneylender you want to borrow from and the loan you are planning to take.
- Verify the credibility and license of a money lender by visiting the complete list of licensed moneylenders on MinLaw’s website.
- Lending money to and from friends and family is allowed and does not require a license.
- Conducting the business of moneylending without a license is illegal and punishable by law.
- Loan sharks trick unsuspecting borrowers by providing too-good-to-be-true loans and sending unsolicited emails and SMS messages
- Seek police protection and assistance by calling 999 or dialing the X-Ah Long hotline at 1800-924-5664.
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