Being an adult means taking on a lot of responsibilities. This includes financial responsibilities, such as getting a job and managing your bills. On top of that, you also need to save for major life changes, like getting married or having an emergency fund for unexpected expenses.
But what happens if your savings are not enough? Most people take out a traditional bank personal loan. Unfortunately, some may face restrictions. This is when borrowers seek a personal loan alternative with licensed moneylenders.
While applying for bank personal loans can be a seamless experience, licensed moneylenders can provide quick cash disbursal. Additionally, with the regulation of the Ministry of Law, legal lenders have made strides in becoming an excellent alternative. In this light, which one should you choose?
What Are Licensed Moneylenders?
Licensed money lenders in Singapore are registered and regulated under the Ministry of Law. A licensed lender can provide fast, hassle-free loans to Singapore Citizens and Singapore Permanent Residents. Additionally, they can provide loans to foreigners as long as they have a valid Employment Pass.
But are Professional Moneylenders Different from Loan Sharks?
Licensed lenders abide by the rules and regulations stipulated in the Moneylenders Act. As such, they are restricted by the amount they can lend and the fees they can charge. Best of all, the interest rates they can charge are capped.
Loan sharks, or illegal moneylenders, are known for their sky-high interest rates and harassment tactics.
To ensure that you are dealing with a licensed money lender, you need to find the full list of licensed moneylenders on MinLaw’s website. As of April 2022, there are 154 moneylenders in Singapore, and none of them are suspended.
Note that the list is regularly updated so make sure that the moneylender’s license is still valid. Taking a personal loan from licensed moneylenders is a viable option if you need immediate cash for emergency expenses.
What Is the Difference Between Money Lenders and Banks?
Most people immediately turn to banks when they need financing. But with the proper regulation of licensed moneylenders in Singapore by the Ministry of Law, they have become a viable alternative. But what are the key differences between banks and legal money lenders?
|Lower interest rates||Higher interest rates|
|Borrow up 10x monthly income||Borrow up to 6x monthly salary|
|Regulated by the Monetary Authority of Singapore||Regulated by the Registry of Moneylenders, Ministry of Law|
|Longer loan tenure – up to 7 years||Shorter loan tenure – up to 12 months|
|Stringent application process and needs a good credit score||Aren’t too concerned with credit history and place more emphasis on the borrower’s ability to repay the loan|
We’ll take a closer look at the difference between the Personal Loans offered by banks and licensed moneylenders in the next section. But first, let’s discuss how banks and licensed lenders differ in terms of their loan application process.
1. Credit History
Banks prefer borrowers with a decent credit score of 1000-2000 and above. Borrowers who have scored less than this value — plus with a yearly income lower than S$20,000 — automatically have limited chances for loan approval.
A licensed moneylender doesn’t solely focus on a borrower’s credit score. Instead, they will focus on their income-to-debt ratio. This requirement highlights the importance of presenting all necessary documentation to prove a borrower’s income and employment.
2. Approval Speed
The reason why commercial banks take time in processing your loan application is due to the following reasons:
- Reviewing your employment and income proof documentation
- Evaluating collateral
- Procuring your financial performance
- information (credit history, score, etc.)
- Building your risk profile
Therefore, if you’re looking for quick financing, a bank isn’t the best option for you.
Singapore’s licensed moneylenders might be small, but they pay out as quickly as possible. In fact, they can release your money in 30 minutes if you bring all the required documents. You might expect some delays if they need you to provide additional documents.
One major difference when it comes to licensed moneylenders vs banks is they do not ask for or require collateral from borrowers. Borrowers might be paying a non-secured loan, but the small amount of money you can borrow guarantees you won’t fall into deep debt.
3. Loanable Amount and Minimum Income Requirement
With a traditional bank personal loan, you can borrow up to 10 times your monthly salary. This maximum loan amount makes them appealing to consumers. However, they require most consumers to have an income above S$20,000 and good credit history.
When it comes to unsecured loans, licensed moneylenders can only provide up to 6 times of a borrower’s monthly paycheck. The amount you can borrow will depend on your income. Take a look at the table below:
|Borrower’s annual income||Singapore Citizens and Permanent Residents||Foreigners residing in Singapore|
Less than $10,000
At least $10,000
and less than $20,000
At least $20,000
6 times your monthly income
6 times your monthly income
4. Personal Loan Interest Rates
The current personal loan interest rate ranges from 3.5% to 10.8% p.a. Note that interest rates may vary per bank and depend on certain factors.
With a legal lender, you can expect them to charge you from 1-4% per month. The interest rate is capped at 4% regardless of your income and whether the loan is secured or unsecured.
Like banks, the interest rates depend on the money lender. Make sure to compare multiple personal loans before applying for a loan to find the best offer. You can also read more on Singapore’s moneylender guide.
5. Loan Tenure
The loan tenure translates to the amount of time the bank or licensed moneylenders give you to repay the loan.
Traditional bank loans have a maximum loan tenure of between 5 and 7 years. Keep in mind that while a longer tenure will make repayments more manageable, it will also mean that you’ll be paying a higher total amount of interest.
Legal lenders offer shorter loan terms than banks. This means you can potentially save on interest. It is a good option if you only need the loan for a short period.
6. Eligibility Requirements
Banks will typically have stricter eligibility and requirements for customers because they can lend high amounts of money. On the other hand, licensed moneylenders will ask for fewer requirements except for documentation that helps establish your professional identity, income amount, and employment
Personal Loans From Bank vs Licensed Moneylender
|Loanable Amount||Up to 10x monthly income||Up to 6x monthly salary|
|Interest Rates||Between 4% and 10% p.a.||Capped at 4% per month|
|Loan Tenure||Up to 7 years||Up to 12 months|
|Minimum Income Requirement||At least S$20,000 annual income||At least S$1,500 for Local and PR At least S$2,000 for Foreigners|
|Basic Eligibility Requirements||At least 21 Years old Employed Full-Time NRIC photocopy Recent billing or letter sent to borrower’s address Employment certificate 3 months computerized payslips 2 Years Notice of Assessment 12-Month CPF Contribution History Credit Statements from any previous financing or use of financial service.||At least 21 years old NRIC Card Recent utility or other bills or any letter sent to your address Employment letter of offer If less than six months working in Singapore, 3 months of pay slips Singpass details|
What Happens if I Don’t Pay the Moneylender?
You will face serious consequences if you default on a personal loan – whether with a bank or licensed moneylender. For one, your licensed moneylender is legally entitled to take legal action against you. Note that taking on a personal loan and signing a loan contract is legally binding.
Here are other consequences you’ll face:
- Interest will keep accruing: If you fail to make repayments on time, you’ll incur late interest fees and late fees. This will snowball the longer it takes for you to repay the personal loan.
- Your credit score will be affected: Even if your personal loan is with a licensed moneylender, defaulting on payments will negatively impact your credit score. Legal lenders will still report your non-payments to the proper authorities.
- Loan tenure extension: Some legal lenders may consider restructuring your loan. This could lead to a loan tenure extension to give you more time to repay your obligation. However, this will also mean an increase in your total repayment obligation and total interest.
- Have a harder time applying for a loan in the future: Since your credit score will be affected, it will signal to banks and other lenders that you are a high-risk borrower. This can cause your loan application to be rejected in the future.
Tips When Selecting the Best Loan
When shopping for a personal loan, you need to take your time in comparing the best loan plans that will suit your needs. Aside from interest rates, what else should you watch out for?
- Purpose of the loan: What are you going to use the loan for? With a personal loan, you can use it for a wide variety of things. For instance, you can use it for purchasing big-ticket items or paying medical bills.
- Interest Rate: Compare the best terms and interest rates before making a decision. Banks may offer lower interest rates, but with a longer tenure, it can amount to higher total interest costs.
- Fees and Charges: Aside from interest rates, banks and moneylenders will charge additional fees, such as annual fees, late payment fees, and processing fees.
Note that licensed lenders can only charge the following fees:
- An administrative fee of not more than 10% of the principal loan amount when the loan is granted
- A late payment fee of not more than S$60
- Loan legal costs ordered by the court for a successful claim by the moneylender for the loan recovery
The loan amount you need:
Remember to borrow only the amount you need and how much you can afford to repay. For instance, with a bank loan, you can borrow up to 10x your monthly salary. If you don’t need that much money, opt for a smaller loan amount so it will not cause financial strain in the future.
Bank vs Licensed Moneylender: Which Is Right for You?
Choose to take out a personal loan with a traditional bank if you need a bigger loan amount and require a longer loan term. On the other hand, choose a licensed moneylender if you need urgent cash to cope with an emergency.
With a traditional bank loan, you can borrow up to 10x your monthly income with a maximum repayment of 7 years. Additionally, a bank is a good option if you have a good credit score and meet their minimum income requirement.
A licensed moneylender is great if you need a specific loan amount and need a shorter loan repayment period. It is also a viable alternative if traditional bank loans are not available to you.
Now that you have compared the features of banks and licensed money lenders in Singapore, you may still be weighing in on which to choose. Remember that not all loan plans are created equal. The answer depends on how much money you need and if the loan amount is suitable for your budget.
- While applying for Singapore bank personal loans can be a seamless experience, licensed moneylenders can provide quick cash disbursal.
- Licensed money lenders in Singapore are registered and regulated under the Ministry of Law.
- With a traditional bank personal loan, you can borrow up to 10x your monthly salary while a licensed moneylender can provide up to 4x your monthly income.
To help you with your financial decision-making, we recommend using Loan Advisor’s online facility to compare loan plans and find the best loan offer in Singapore. Browse our best money lender Singapore to find the loan you would like to apply for and get a free quote to find the best rate today.