When the whole nation was put under a ‘circuit breaker,’ others had enough savings and stable jobs to support emergency expenses. Unfortunately, that’s not the case for everyone. Low-income earners in the no-work-no-pay setup were gravely affected by the pandemic.
Tight financial situations can trigger one’s desperation. Anything that promises to provide some financial relief might appear to be a reasonable option in times of need. Avoid falling into a debt trap by finding the ins and outs of Singapore’s Moneylenders Act (MLA) in this short guide.
What is the Moneylenders Act Singapore?
The Moneylenders Act (MLA) of 2008 governs the business of moneylending in Singapore. This social legislation regulates licensed moneylenders in terms of providing fair terms and considerations. It also protects borrowers from the unscrupulous activities of unlicensed moneylenders or loan sharks.
Even before the pandemic, the money lending business has gained popularity making illegal money lenders thrive. Fortunately, a law monitors the moneylending industry in Singapore and aims to protect borrowers and lenders.
What are Unlicensed Moneylenders?
Unlicensed moneylenders, or Ah Longs, operate illegally and target low-income and desperate borrowers in Singapore. These illegal money lenders operate without legal documentation and often impose unclear terms and conditions on their borrowers.
Often, borrowers who fall into these traps, and fail to repay within their terms, are faced with difficult consequences. Their methods of collection include harassment, threats, and even violence.
How to Know if a Moneylender is Licensed?
Taking out a loan from a licensed moneylender is an easy way to quick cash. Licensed moneylenders do not approve solely based on a credit bureau report and are also a good way of building or repairing one’s credit score. Moreover, they also do not require secured loans and strict requirements as a bank would usually do, making them an ideal option for many borrowers.
However, before rushing to one, check if the moneylender is a licensed and reputable lender. Here are some crucial things you check for:
1. No Legal Documents
Note that the only moneylenders who are allowed by MLA to operate a moneylending business are those who are:
- Authorized to do so by license
- An excluded moneylender
- An exempt money lender
Illegal moneylenders do not have legal documents or may also present fraudulent ones. Often, they present borrowers with an incomplete or blank contract after a loan approval. This practice allows them to impose loan terms and conditions that are most beneficial to them but rather unfair to the borrower.
2. No Limit on Loan Amount
Unsecured loans from licensed moneylenders have a loan limit depending on the borrower’s annual income, as prescribed in the MLA. To entice desperate borrowers, an unlicensed moneylender could offer large sums and lend money to borrowers as often as they want.
MLA has also placed a cap on the allowed loan you may borrow across moneylenders combined. (e.g., a Singapore Citizen whose annual income is less than S$20K is only allowed to borrow S$3k)
3. Exorbitant Interest Rates
Licensed moneylenders are only allowed to charge up to 4% per month as required by the Ministry of Law (MinLaw). With loan sharks or illegal moneylenders, borrowers are caught off-guard with ridiculously high interest, often imposed right after they sign a loan contract.
4. No Clear Rules on Imposing Other Charges
Licensed moneylenders are only allowed to charge specific fees. Unlicensed moneylenders don’t have clear rules on what fees will be charged to their borrowers. Be wary if a moneylender asks you for payment, a guarantee deposit, or a loan processing fee before a loan gets approved.
5. Advertises on Illegal Channels
Licensed moneylenders are only allowed to advertise on three channels, namely their website, business directories, and the business premises. The lender is most likely an illegal moneylender if you get a loan offer thru SMS, email, flyers, or other media channels.
6 Conducts Illegal Activities & Unfair Practices
Illegal moneylenders are also known for their illicit activities in the lending and collection processes.
Notorious practices and unfair practices may include:
- Stalking the borrower and their family members
- Calling repeatedly, even on unreasonable hours
- Use of abusive language, threat, or violence in demanding payment
If you have become a victim, or know someone who is a victim of these practices, report the incident to the authorities and get legal advice. Contact the Registry at telephone number 1800-2255-529 to escalate the complaint.
What to Do If you Plan to Borrow Money from a Licensed Moneylender?
To ensure a smooth moneylending experience, make sure your decision is well-thought-of. It would be best to have a clear financial plan on where funds will be used and an adequate income flow for monthly repayments. Below are a few things to do before considering borrowing from a licensed moneylender.
1. Do financial planning or seek professional financial advice.
Borrowing money is a crucial financial decision for everyone. As tempting as it may be, ensure you only have the right reasons for taking out a loan. If it is not an urgent need, you may save up some money or borrow money instead from family members or relatives.
2. Gauge your future financial capacity.
To avoid problems with late interest, and even defaulting on your loan, make sure that you have considered your income flow and other financial obligations. One good rule of thumb regarding moneylending is to borrow only an amount you can repay, given your financial circumstances.
3. Shop around and compare licensed moneylenders’ terms.
Singapore has many licensed moneylenders who offer varying interest, repayment terms, and considerations. Do your research by checking customer feedback or Google reviews from past clients.
To save on time, you can also use a reliable loan comparison service to find the best moneylender with favorable terms that suit your needs.
What to Do After a Loan Gets Approved?
Getting the loan approval is only the beginning of the borrower’s loan journey. To avoid difficulties in the future, the borrower should bear these things in mind:
- Make sure the moneylender delivers the correct principal amount of the loan. The moneylender is only permitted an upfront deduction of a loan approval fee of up to 10% of the principal amount.
- Pay the loan installments on time to avoid late interest fees and charges.
- Make sure the moneylender issues a receipt every time you make any repayment towards the loan, and check it for correctness (e.g., name, amount, date).
- Make sure you receive a statement of account for all your loan(s) at least once every January and July, and check it for correctness (e.g., name, amount, date); and
- Retain a copy of all statements of accounts and receipts of payments as documentation and evidence of payments.
Where to Find the Best Licensed Moneylenders
With the government’s help, Singapore has a competitive list of licensed moneylenders registered under MinLaw. Currently, there are 153 listed in the registry of moneylenders. With this number, choosing the best one to suit your needs could be a daunting task.
Other ways to find the right option for you are:
By doing thorough research, you can find top moneylenders in Singapore. You can then evaluate a moneylender based on its loan terms and credibility. Consider visiting the moneylender’s business address for further validation.
Note that under MLA, the moneylender should visibly place its business name with the words “Licensed Moneylender” outside its business place.
2. Google Reviews
Google reviews are a reliable way to find good moneylender options. Its star rating scheme is an easy way to spot worthy options. You’ll also find good and bad customer feedback to help you decide further.
3. Loan Comparison Service
A reliable loan comparison service provider could also be an efficient and time-saving option. Check out Loan Advisor’s service, get free quotes, and compare easily.
How to Apply: Borrowing Requirements and Eligibility
The paperwork for applying for a loan from legal moneylenders is relatively lesser than getting loans from traditional banks. But that does not mean the licensed moneylenders are complacent.
1. Personal Information
As a first step, the borrowers should provide these particulars to the moneylender:
- Full name;
- Date of birth;
- Personal identification number;
- Residential address;
- Email address;
- Contact number; and
- Amount of loan applied
- Monthly Income
On the other hand, foreign borrowers should be ready to present their:
- Original valid employment pass;
- A copy of their tenancy agreement;
- Appointment letters from the borrower’s employer; and
- Bank statements.
2. Supporting Documents
To proceed with the loan, here are the supporting documents that a borrower must submit to the moneylender:
- Proof of the borrower’s total income for the preceding three months before loan application;
- Utility bills;
- Payslips; or
- Income tax statements
Before taking out a loan, it is always best to do due diligence in assessing your capacity to repay the loan on time. If applying for a loan is the only option left, carefully look at the reputation of the chosen moneylender. You can also find money lender list on Loan Advisor’s site.
- No matter what the reason for borrowing money is, never borrow from unregistered and illegal lending businesses.
- The offer may be fraudulent if the moneylenders promote their moneylending business through flyers, SMEs, emails, social media, or other prohibited platforms.
- All licensed moneylenders are mandated to adequately disclose and carefully explain the term and conditions of the loan before granting any loan to a borrower.
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