What Interest Rates Can A Money Lender Charge?

Personal Finance

What Interest Rates Can A Money Lender Charge?

September 23, 2022

Are you looking to borrow money from a licensed money lender in Singapore? If so, it’s important to understand the terms and conditions first.

One of the key aspects you need to be aware of is money lender interest rates.

But with both banks and money lenders in Singapore now regulated by the Moneylenders Act, what’s the maximum amount of interest they can charge?

Understandably, this is something that many people are curious about. After all, no one wants to be ripped off or charged more than they should be.

So let’s talk about the maximum money lender interest rates, fees, and other critical things you should know about.

What Are The Interest Rates Money Lenders Can Charge?

As of 1 Oct 2015, all money lenders in Singapore are required to be licensed by the Registry of Moneylenders.

Under the Moneylenders Act, there are now strict rules about the maximum amount of interest money lenders can charge.

So, the highest rate a licensed money lender can charge is 4% per month. Money lenders can offer lower than 4% to give you better deals, but they can’t go even slightly above 4%.

The same rule (4%) applies to late payments as well. If your loan repayments are overdue, the money lender can’t charge you more than 4% interest on that too.

Also, it is essential to understand the right way to compute interest and ensure your money lender does the same. Two things are worth noting here.

First, remember that interest is charged on the principal amount minus the repayments. Let’s look at an example to understand this.

Suppose you borrowed $8,000 and repaid $3,000 down the line. Interest will only be calculated on the remaining loan amount, not the original principal amount.

Secondly, late interest applies only to outstanding payments, not current payments. For instance, if you borrowed $8,000 and failed to pay the first installment of $1,000, the money lender can only charge late interest on that $1,000.

They can’t charge the late interest on the rest of the payments as long as they are not due yet.

What Are The Fees Money Lenders Can Charge?

Aside from interest, money lenders are also allowed to charge other fees. However, they can’t charge more than certain limits.

The total fees a money lender can charge are:

  • a fee not exceeding $60 for each month of late repayment;
  • a fee not exceeding 10% of the principal of the loan when a loan is granted; and
  • legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.

However, it’s important to note that not all of these fees are mandatory. Depending on their internal policies, money lenders can choose to waive some of them.

How Much Can You Borrow?

The answer to this question depends on the type of loan you apply for.

If it’s a secured loan, you must pledge an asset as collateral to the financial institution. In return, you can borrow any amount.

On the other hand, an unsecured loan will have certain limitations. Let’s look at what those are:

If you earn less than $10,000 as a Singapore citizen or permanent resident, you can borrow a maximum of $3,000.

However, the amount comes down to $500 for a foreigner earning the same amount.

If you earn between $10,000 and $20,000, you may borrow a maximum of $3,000, whether you are a citizen, permanent resident, or a foreigner residing in Singapore.

And if you earn at least $20,000, you may borrow up to six times your monthly salary. Again, your residency status won’t matter in this case.

If you want to borrow more than the above-mentioned amounts, you’ll have to go for a secured loan and submit an asset as collateral to your money lender.

What To Consider Before Taking A Loan From A Money Lender

Now that you know about interests, fees, and borrowing limits, let’s see what factors to consider before taking a loan from a money lender.

         1. Do You Have Any Other Options?

Before applying for a money lender loan, check if you have any other options.

If you need a small amount of money and have a good credit history, you may be able to get a personal loan from a bank at a lower interest rate.

Also, government agencies offer several financial assistance programmes that you may be eligible for.

So make sure you’ve considered all your options before signing off a loan contract.

         2. Are You Eligible To Apply For A Loan?

You have to be sure you are eligible to apply for a loan. You need to be at least 21 years old to apply for a personal loan in Singapore.

Plus, you need to have proof of a steady income and valid residence or citizenship status.

         3. How Much Do You Need?

Remember that the maximum loan amount you can borrow depends on your annual income. You can either borrow $3,000 or six times your monthly salary.

So if you need to borrow more, be prepared to apply for a secured loan.

In that case, you must pledge an asset as collateral to receive your desired loan amount.

         4. Can You Repay The Loan?

Assess your financial situation and figure out how much money you need. It’s easy to get caught in a cycle of debt if you borrow more than you can afford to repay.

So take out only as much as you need and make sure you have a repayment plan.

This will help you to avoid defaulting on repayments and incurring late payment fees.

         5. Is Your Credit History Good?

Your credit history plays a vital role in loan eligibility.

You’re more likely to get your loan approved if you have a good credit score. Or you may even get a personal loan from a bank at a lower interest rate.

On the other hand, if you have a poor credit history, you may be charged a higher interest rate, or your application may be rejected altogether.

          6. Is Your Money Lender Licensed?

It’s essential to make sure your money lender is licensed because the government doesn’t allow money lenders to operate without a licence.

You can check the list of licensed money lenders on the Registry of Moneylenders website. Or, you can call the Registry at 1800-2255-529.

The Registry’s staff are professional and cooperative. You can request them to verify a money lender’s registration and legal status.

Once you’ve thought about all these considerations, you’re ready to apply for a loan from a money lender.

Just remember to shop around and compare different lenders before making your final decision.

What To Do After Taking The Loan

If your loan gets approved, your money lender will send you a copy of the loan agreement and an account statement.

Review these documents carefully before you sign them.

Take your time to understand the terms and conditions of the contract and the repayment schedule.

Don’t hesitate to ask questions if you are confused about anything or need clarification regarding the agreement.

Once you’ve signed the agreement, you will be legally required to make monthly repayments within the allowed time frame.

If you default on repayments, you will be charged late payment fees, and your credit score will be affected negatively.

So make sure you don’t get lazy with repayments.

Pros And Cons Of Banks And Licensed Money Lenders

Thankfully, you have two borrowing options in Singapore – licensed money lenders and banks.

Let’s see what the pros and cons of both these options are before you make a decision.

Borrowing From A Bank

Banks have stricter lending criteria as compared to licensed money lenders.

For example, you must have an annual income of at least $30,000 to apply for a personal loan if you are a Singapore citizen or permanent resident.

If you are a foreigner residing in Singapore, the bank may require anywhere from $40,000 to $60,000 in annual income.

Similarly, banks may require additional documents with your loan application and take a few weeks or even months to process your application.

However, banks can offer interest rates as low as 1% per month. Moreover, you can borrow much higher amounts as compared to what you can borrow from a licensed money lender.

Borrowing From A Legal Money Lender

Licensed money lenders have more lenient lending criteria as compared to banks.

For example, you may be eligible for a loan even if you have an average credit history.

Money lenders are also more flexible with their lending and repayment schedules.

Moreover, borrowing from licensed money lenders is a much faster process. You may even get your loan amount within 30 minutes if your documents are ready and everything is in order.

However, one drawback of borrowing from a licensed lender is the higher money lender interest rates.

Consider Borrowing From A Licensed Money Lender

The fast and easy process, and instant availability of loans are the advantages of getting a loan from a licensed money lender.

This is why borrowing from a licensed money lender is a viable option.

Do you need help securing a personal loan?

Our reliable and qualified team at Credit Thirty3 can help. Contact us for a consultation today or apply for a loan with us now.