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Licensed Money Lender Vs Bank: What’s The Difference?

Pointing The Finger In Front Of A Person Signing
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It’s easy to find a licensed money lender in Singapore. With just a quick visit to the Registry of Moneylenders, you can find numerous licensed moneylenders that can offer you considerable amounts with fair rates. You’ve heard many Singaporeans find a licensed moneylender much more useful than banks.

On the other hand, you’ve taken out bank personal loans and found the experience seamless. In this light, should you stick with banks or consider licensed money lenders as an alternative?
Let’s compare both of them below.

Hand giving money Dollars

Loanable Amount

The loan amount you can borrow determines which lender you might have better advantage. Their investment venture and proactive investing allows banks to provide higher loan amounts.

On the other hand, licensed money lenders have a smaller funding pool. However, even their highest payout for a loan is accessible through non-secured applications, making them appealing for all borrowers.

  • Banks

Financial institutions will naturally target individuals who have a steady stream of income. A bank typically provides up to 10 times your monthly salary. This capacity makes them appealing to consumers. However, they require most consumers to have income above S$20,000 and good credit history.

  • Moneylenders

When it comes to unsecured loans, licensed moneylenders can only provide up to 6 times of a borrower’s monthly paycheck. However, licensed moneylenders focus on providing individuals that earn less than S$20,000 yearly and have inadequate credit scores quality financing. Conveniently, licensed moneylenders in Singapore can provide you with quick-payout payday loans.

Loan contract approved

Approval Speed

Banks are notorious for lengthy approval and payout schedules. Alternatively, licensed money lenders are famous for releasing loans on the same day or within the same week.
Speed is of the essence for many Singaporean borrowers. Often, a financial institution’s approving pace depends on the time you submitted all required documents.

  • Banks

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.

  • Moneylenders

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 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 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.

Make sure to only borrow from a licensed money lender and not from unlicensed moneylender or loan sharks that are not registered with the Ministry of Law (MinLaw). Make it a habit to always verify the license of the financial institutions or money lenders that you are eyeing for before making a move. Failure to do so may result in piling up of interest rates and worse, threats and harassments from “ah long” if you can no longer pay their unlawful charges.

Agreement and acceptance

Eligibility and 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 documentation that helps establish your professional identity, income amount, and employment

  • Banks

Established commercial financial institutions will ask you to provide the following documents:

    • 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 S$20,000 annual income

Banks have separate requirements for collateral. Unfortunately, most eligible collateral has requirements specific only to every financial institution. Consult with them to learn all about these requirements.

  • Moneylenders

Licensed moneylenders are quite lenient when it comes to personal loan or other financing requirements. Once you present the following, you can get your loan from money lenders within the same day and possibly in less than an hour.

    • 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

Credit report with score

Credit History

Credit scores play a huge role because commercial financial institutions need to assess the risk profile of all their potential borrowers in the best way possible. They can only entrust a huge amount of money in the hands of individuals who can pay them back in full. A borrower’s credit history or score determines the financial products available for them.

On the other hand, a licensed moneylender can’t offer high-amount financing, but prioritizes Singaporeans, Singapore permanent residents, and foreigners who earn less than S$20,000 annually. Because of their lower total amount of loan, they can take a risk with any borrower that has a poor credit score.

  • Banks

A bank will prefer borrowers who have a decent credit score of 1000-2000 and above. Borrowers who have scores than this value — plus with a yearly income lower than S$20,000 — automatically have limited chances for loan approval.

In some cases, a bank will approve the application of borrowers with bad credit. However, they will accompany their decision with additional requirements, such as a compulsory collateral or a higher interest rate monthly.

  • Moneylenders

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 An approved personal loan application from moneylenders is often accompanied with higher interest rates.

Keeping track of all your expenses through effective calculation of your income-to-debt ratio is one of the best ways to ensure you won’t fail in paying your loans regularly. Failure to do so has you pay penalties adding to your monthly interest for both financial institutions’ loan products.

Hand holding golden percent symbol

Interest Rates

All financial institutions and money lenders follow regulation-imposed interest rates on all their products and services. Going beyond it is a violation that warrants penalties or possible suspension on both sides.

Truthfully, each licensed money lender ‘s interest rate differs vastly from each other. Both institutions calculate their individual interest rate based on a set of requirements and guidelines. Not sure what is the difference between effective vs annual interest rate? Check out our article on effective vs annual interest rate.

  • Banks

In most Singapore loan products, interest rates are around 4-10% and are calculated on an annual basis. Interest rates vary from time to time. Alongside your income, your presented collateral plays the biggest role in helping reduce the interest rates of a credit card, personal loans or other commercial loans.

  • Moneylenders

Licensed money lender in Singapore, you can expect them to charge you from 1-4% per month. Like banks, the interest rates depend on the money lender. Make sure to compare loans before applying for a loan to find the best offer. Check out here for the Ultimate Guide to borrowing from Licensed Money Lender in Singapore.

So which should you choose?

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 to your budget.

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.

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