Being an adult is challenging. Finding a job, keeping up with your payments, and avoiding financial trouble is not enough.
You need to also put aside money for significant life events such as getting married, having a child (if you intend to have one), or renovating your home.
In addition, you should set aside some money in case of an emergency, such as in the case of an accident.
What To Consider Before Taking Up A Loan
It might be intimidating to go through all the options for personal loans in Singapore to find the one that’s best for you.
Stumped about picking the right one? These four considerations are all you need to understand money lenders’ rules.
1. Interest Rate
One of the most important aspects of any loan is the interest rate, which is used to determine how much money you will accrue over the life of the loan.
For example, suppose you are considering a loan with an annual interest rate of 5%. If you borrow $4,000 and pay it back over a year, you’ll pay $200 in interest.
A loan’s overall cost is affected by several factors, but interest rates are one of the most significant. The total amount you pay back will increase if you extend the period you borrow the money for.
Suppose you’re considering getting a personal loan in Singapore. In that case, you should know that the law only allows a maximum interest rate of 4% per month to be charged by registered money lenders.
There is a high chance that you may be dealing with an illegal money lender if the interest rate is higher.
You should compare rates from several lenders before deciding on one. Many companies offer loan rates as low as 1.8% annually.
2. Total Loan Costs
Total personal loan costs include borrowed funds, interest, and applicable fees. Check to see whether the sum is manageable.
Add up the personal loan interest, so you know what the total will be. Don’t forget to factor in late penalties if you find yourself in the unfortunate position of having to make a payment late.
Note If you want to borrow money from a legitimate lender, you shouldn’t have to pay more than $60 in late fees and 4% interest monthly.
3. Duration Of The Loan
The term “loan tenure” describes the period you have to make payments on a loan. Payment amount, interest, and overall cost are all impacted.
As such, it’s wise to give some thought to whether or not you’ll have enough money to pay back a loan on time.
The payback schedule varies from contract to contract, but it’s often once every week, two weeks, and sometimes once a month. Late payments will result in additional costs.
A negative indicator is if you find your expenses increasing exponentially.
Sometimes borrowers may take out a new loan to cover the costs of their existing debt. It’s essential to exercise caution before embarking on this path, since it may quickly snowball into a never-ending cycle of debt. Don’t repeat the same error I did!
4. Loan Criteria
Although it may seem apparent, it is crucial to check that you can get a personal loan in Singapore.
One of the most basic loan eligibility requirements is a minimum borrower age of 21.
To qualify for a personal loan from a bank in Singapore, you’ll need to earn at least $30,000 each year. For those who don’t fit this description, this may be limiting.
So, are there any other ways to get personal loans in Singapore?
Don’t stress out if the bank turns you down. Some authorised money lenders have more lenient requirements.
Differences Between Licensed And Unlicensed Money Lenders
When you are facing a cash crunch, you may wonder if legal money lenders can help you out with cashflow.
But first, you need to know that a licensed money lender and an “ah long” are not the same.
Unlicensed money lenders, often commonly known as “ah long” or loan sharks, are notorious for charging very high interest rates and harassing borrowers to get their money. Here are two examples of what they do to make their point: pig heads and vandalism.
In contrast, licensed money lenders in Singapore are regulated by the Registry of Moneylenders.
As such, licensed money lenders have limits placed on the amount of money they are allowed to lend, the fees and interest rates they are allowed to charge, and the total amount they are allowed to charge overall – as stipulated by the Moneylenders Rules.
How can you tell if the money lender you are working with is licensed? You can find a comprehensive list of licensed money lenders on the Ministry of Law website.
There are 154 licensed money lenders operating in Singapore as of Apr 2022, and none have been suspended. So visit the website to verify if a money lender’s license is in good standing.
You can also speak with a credit counseller before applying for unsecured loans from the verified list of licensed money lenders.
Moneylenders Act and Rules Singapore
Did you know you are breaching the law if you borrow money from unauthorised creditors?
Yes, as if there were anything that could be worse than being harassed in the comfort of your own home and putting the well-being of your loved ones in jeopardy.
The Act and Rules Governing Licensed Money Lenders: To ensure that borrowers are protected, Singapore has capped the interest rate and set up the Registry of Moneylenders.
Registered money lenders will charge a late payment fee if you are late with your repayments. Although the price is pretty steep, it is nothing compared to what “ah longs” charge.
As it is already against the law to lend money without a license, most unlicensed money lenders do not mind breaching the law to collect their obligations.
Use of threatening, abusive, or insulting language, behaviour, writing, or other forms of communication is prohibited by the Moneylenders Credit Bureau, as it might put the borrower or his loved ones in danger.
On the other hand, loan sharks are unregistered lenders who will not care about flouting these rules.
How To Tell If A Money Lender Is Licensed
A word of warning: Holders of work passes who borrow money from unregistered money lenders risk revoking their ability to find work in Singapore in the future.
Therefore, you should not reply to any text messages from such illegal lenders or respond to the advertisements that they post on social media.
In addition, licensed money lenders are required to abide with confidentiality clauses such as protecting the borrower’s privacy concerning any information that the borrower discloses.
This means they should not put up posters around town identifying and humiliating you for not paying back your loans.
That said, there are always going to be bad apples in every sector, so be careful.
Differences Between Borrowing From A Licensed Money Lender And A Bank
The majority of licensed money lenders will only give smaller loans. Typically, they are tiny enterprises with no financial resources to withstand a loss of millions of dollars if a borrower defaults.
These loans are pegged to your salary and range from a few hundred to a maximum of $1,500. In contrast, banks often provide the best rates and terms for large personal loans (above $10,000).
There are benefits of borrowing money from a registered money lender. For one, the process is more reasonable and fewer limits are placed on your citizenship or earnings.
Banks in Singapore are generally stringent with personal loans – typically, only those with yearly incomes of $20,000 or more, or $45,000 or more if they are foreigners, are eligible to apply.
With regulated money lenders, you won’t face as much scrutiny on your credit history, and the loan can be granted and disbursed in a matter of minutes.
However, the interest rates for such conveniences are often much more significant than those offered by traditional financial institutions, typically ranging from 25% to 30% annually.
So don’t use a personal loan to avoid eating instant noodles during the month’s final week. The loan should serve a clear purpose, and your repayment strategy must be well-defined.
Can You Borrow From Multiple Money Lenders?
In a nutshell, sure. However, in such a scenario, the lender will look at your financial status more closely, including your repayment capacity.
Debt-to-Income (DTI) ratios may be used to determine whether you should take on more debt based on your current financial situation.
So if you are offered another loan, you should consider carefully whether or not you should accept it.
What Is The Maximum Loan A Person Can Take?
Even if you discover a bank that offers the best individual loan rates, it will be challenging for you to get an unsecured loan if your salary is less than $20,000 yearly.
It would be the case even if you locate a bank that offers the best personalised loan rates. On the other hand, the law permits licensed money lenders to give out loans of up to $3,000 to borrowers.
If you make more than $20,000 per year, a licensed money lender may be able to grant you a loan that is equal to between two and four months’ worth of your wage. That doesn’t guarantee they would, of course; it only means they may.
In the end, everything revolves around the level of faith that the lender has in you to pay back the loan.
Because of this, money lenders are great for paying modest, unexpected expenditures. These include costs associated with having your automobile serviced, making a payment to a clinic, or purchasing an inexpensive airline ticket.
What To Do Once The Loan Is Approved
The lender will go through your application and credit history when you apply for a loan. Read the loan contract carefully and make sure you understand it.
The lender is obliged to explain the terms to you in a language you can understand easily.
Keep your contract, Statement of Account, and receipts properly and ensure you make your repayments on time.
Repercussions Of Not Paying Back Your Loan On Time
Let’s say even after receiving multiple warnings, you are unable to return your debt. Licensed money lenders won’t spray-paint O$P$ on your hallway walls, but they will send debt collectors.
These individuals have undergone extensive training to get you to return your debts legally. Even if they aren’t violating the law, they may still be intimidating.
The following is a list of legal actions that debt collectors may and cannot take.
Licensed money lenders may use a variety of tactics to reclaim their money. It might be anything from receiving a barrage of letters, text messages, and phone calls.
To save yourself the worry and hassle, it’s better to arrange a payment plan if you’re having problems repaying your bills, preferably with a reduced interest rate.
The debt collectors may help you with this, or you can try to negotiate with the lender personally.
It’s a safe bet that most money lenders would prefer to get their money back as soon as possible than see you go bankrupt, which is why they’re often willing to negotiate a reduced interest rate for you.
After exhausting all other options for debt relief, such as credit counselling and realising that you are just over your head financially, you may be forced to declare bankruptcy and lose valuable possessions such as a vehicle or investment property. This is, of course, a worst-case scenario.
Because of the higher interest rate, personal loans, whether obtained from a bank or a registered money lender, should only be utilised as a last option when necessary.
Suppose you often find yourself in a position where you need to borrow money from licensed money lenders because of cashflow problems.
In that case, it is time to make some long-term changes to your lifestyle.
Create a more stringent budget that will assist you in living within your means and finding methods to boost your income.
Have you ever had problems when you borrowed money?