What Is the Risk Of Taking A Loan From A Licensed Money Lender?


What Is the Risk Of Taking A Loan From A Licensed Money Lender?

September 22, 2022

We all go through financial problems at some point in our lives.

Some will turn to their friends or family for help, but this has limitations as it can ruin relationships.

Banks are the other option; however, they have a demanding and exhausting process.

To qualify for a bank loan, you would need to have a good credit score and a certain income level.

On the other hand, licensed money lenders can help those who need urgent cash as they have fast and efficient approval processes.

But despite this, you still need to know what is the risk of loaning from licensed money lender.

There is still a degree of risk even though licensed money lenders are regulated by government rules that protect borrowers.

How To Settle A Money Lender

Sometimes, you may get challenges that make you overburdened and unable to pay off your loan. If you are unable to settle your debt, here are some tips:

Apply For An Extension

Contact or visit your money lender and talk to them about extending payment dates so that you settle your debts.

An extension will enable you to plan your finances and work on paying those pending debts.

Apply For A Debt Consolidation Plan

Sometimes you cannot pay your debts because you have other debts from other money lenders.

You can request a debt consolidation plan from your money lender to consolidate your debts and deal with only one loan.

The interest charged will also be less.

 Apply For Bankruptcy

This is the last option you should resort to when you cannot pay your debts.

Your lender won’t like to hear this word, but this can bail you out if your debt exceeds $15,000.

As mentioned, it is a last resort that can enable you to start afresh. Applying for bankruptcy prevents further accumulation of interest.

The lender will also not be able to sue you.

What To Consider Before Taking Up A Loan

Credit Score

Your credit score will be used by a lender in deciding whether it should give you a loan.

So ensure your credit report is accurate because the lender will review your credit history before loan approval.

If you find issues with your credit score, contact the credit company to solve the problem.

Type Of Loan

Several types of loans are available – for instance, renovation loans, mortgages, business loans, and personal loans.

Therefore, you should think carefully about which one to take.

Why and what you want to do with the money will help you determine the type of loan to take. Contact a financial expert for advice if you find it challenging to decide.

Interest Rates

Loans always come with interest rates. Therefore, you should do research to compare the different interest rates of various lenders.

Then choose the lender that offers the lowest rate in the market. You should note that the total amount of money you will pay back depends on the interest rate.


Check out the terms and the repayment period of your loan. Note that the loans with an extended repayment term have lower interest and vice versa.


It would help if you considered your assets as security for the loan.

You must offer a guarantee to your lender through the collateral you pledge that you will pay their money back if you cannot settle the loan installments.

The value of the collateral also influences the amount you can borrow.

Your Financial Position

One of the vital things to consider before applying for a loan is your financial situation.

Ensure you go for an amount you can pay without straining yourself financially. Avoid taking large amounts as it can be expensive.

When Should You Take A Loan From A Licensed Money Lender Instead Of A Bank?

When In Need Of Quick Cash

Legal money lenders in Singapore are better for emergencies because banks have more stringent procedures to verify your identity before approving a loan.

Therefore, they take a longer time to approve the loan than lenders. Banks can take several weeks before agreeing, while licensed money lenders can take a day.

When You Don’t Meet The Bank’s Strict Eligibility Criteria 

Whether you visit a bank or a licensed money lender for a loan, it must consider various eligibility criteria before it offers you a loan.

You should note that in this process, you must submit several documents. Banks follow stringent steps when considering if you are eligible for a loan.

They will thoroughly check your financial situation, credit history, employment, and income.

How To Tell If A Money Lender Is Licensed

Once you know how to check if a lender is licensed, you will know what is the risk of loaning from a licensed money lender.

Here are some ways to tell if you are dealing with a legal money lender.

Transparent Terms

A licensed money lender will always explain its terms in a language you can easily understand.

Its terms are transparent, and it will explain what you don’t understand and simplify things so that you understand them fully.

Do not sign any contract if there are still things you don’t understand.

Interest Rates Follow Market Rates

Licensed money lenders do not charge higher rates than what is currently in the market, which the Ministry of Law regulates.

Do not entertain any lender who puts an interest of more than 4% per month.

They Request You Sign A Contract

A legal money lender in Singapore will always request that you sign a contract as the law requires it.

The agreement states that you agree with the terms, including the interest rates, late payment fees, loan tenure, etc. Do not accept a loan offer where there is no signing of a contract.

It Is Registered With The Ministry Of Law

The law in Singapore requires all money lenders to be registered with the Ministry of Law. Those that follow this rule are listed on the Ministry’s website.

If you meet a money lender, check the website to know whether its name is on the list. Its address, phone number, license number and website address should match what is on the website.

Has A Physical Office

The law also requires all money lenders to have a physical office to run their operations.

Professional money lenders always have a physical location where they invite borrowers to talk to them before approving the loan.

Fake lenders do not have an office because they don’t care what the law says. Nor do they want to be found easily.

Illegal Lenders Use Bad Language And Threats

The law prohibits licensed money lenders from using abusive language and threats while collecting their loans.

On the other hand, loan sharks will use insults, harassment, and threats to demand their money.

How Much Can You Borrow from A Licensed Money Lender?

The maximum loan amount you can borrow depends on your income, the lender, and the amount you need.

You should note that there is no limit to how much you can borrow for secured loans with collateral. For unsecured loans, it depends on the following:

Income: The more you earn, the higher your chances of getting a high loan limit. However, the lender will also check several current payments, such as car payments, which could lower the limit.

Lender: Not all lenders have the same policies for lending. You will find different lenders with distinct offers.

The amount you need: The more you borrow, the less likely your lender will approve a larger amount.

This is because the lender also wants to make a profit.

You can get a loan of up to six times your monthly income from licensed money lenders if your annual salary is more than $20,000.

Interest Rates That Licensed Money Lenders Can Charge

Licensed money lenders are not allowed to charge interest rates that exceed market rates.

When obtaining a personal loan, you should be careful not to exceed an interest of 4%.

Because there are many lenders, you can look around and find one with the lowest rate.

Fees That Licensed Money Lenders Can Charge

Some lenders charge extra fees other than interest for the privilege of borrowing from them.

These additional charges, such as penalty and processing fees, are as follows:

  • A loan processing fee not more than 10% of the principal amount
  • Late payment fees that do not exceed $60
  • Legal processing fees as directed by the court if you default on the loan

What To Prepare Before You Take A Loan 

Before beginning the loan application process, gather all the documents your lender may need.

Doing this will make the whole process smoother so you can get your money faster. Documents you need to prepare may include:

    • Personal identification documents such as your NRIC, passport, or driver’s license
    • Employer’s details, including the name of your manager and company and their contact details.
    • Proof of residence such as a rent agreement with your name and address
    • Proof of income-offer documents such as payslips

Risks Of Dealing With A Licensed Money Lender

Before applying for any loan in Singapore, you must get all the correct details.

Despite their speed, dealing with licensed money lenders also has its risks. Below are some of the risks of borrowing from a licensed lender:

Hard To Qualify

Although licensed money lenders are relatively easy to find and get a loan from, you must fulfil specific qualifications to be eligible.

You can’t decide to wake up one morning and get a loan.

Terms And Conditions

All loans in Singapore are accompanied by terms and conditions. For instance, you’re required to make monthly payments by a certain date.

If you fail, lenders can take legal action against you.

Interest Rates

These can be high sometimes due to existing market conditions. Loans depend on the current status of the economy.

Therefore, high inflation causes interest to rise while the reverse leads to lower rates.

Privacy Issues

Money lenders usually require you to provide personal details. Although licensed lenders promise to respect your privacy, some lenders may not play by the rules. So you risk getting your data disclosed to third parties.

Risk On The Guarantors

If the loan has guarantors, this means that someone else has pledged to place their assets on the loan as collateral.

If you don’t repay the debt, someone else’s property is at risk. Money lenders will recover their money by going after the person who acted as your guarantor.

It Could Compromise Your Credit

A credit score is an important factor when borrowing loans.

Even when your credit report is poor, you risk making it worse when you fail to repay your loan on time, especially when dealing with short-term loans.

What To Do Once Your Loan Has Been Approved

  • Confirm if the lender has given you the right principal amount when you collect the money. The Ministry of Law stipulates that money lenders not charge more than 10% of the total loan amount only if approved.
  • Ensure you make your monthly installments as agreed on the contract signing. Remember, late payments will attract penalties. The law also states that lenders should charge only $60 for every month you are late on a payment and a 4% interest rate for every month you are late.
  • Always request for a duly signed receipt from the money lender every time you pay. Confirm if the date and other details are correct.
  • Request a statement of account at least every six months after receiving and repaying the loan. This should help you check any issues and correct them if there are any.
  • Keep your receipts in a safe place, as they will show that you have been paying your loans.

Know The Risks And Your Rights 

It is good to know your financial rights in Singapore.

Many people suffer because they did not know what is the risk of loaning from a licensed money lender.

Or perhaps they took loans they didn’t understand or got into trouble repaying them.

Remember that everything related to the loan depends on how you use the loan. Your decision can make or break the situation.

As a result, when considering a loan, conduct due diligence by researching and assessing the benefits and risks before applying.

Visit a licensed money lender like Credit Thirty3 and explain your issues.

We have the best loan packages that suit your financial needs to help you achieve your dreams.

Contact us now or apply for a loan today.