The Moneylenders Act is a legal document passed by the Parliament of Singapore in Nov 2008. This act outlines the activity of legal money lenders in Singapore to protect both borrowers and lenders.
The effects are multi-fold. First, illegal activities such as loan sharking are considerably reduced.
Secondly, lenders offer competitive loan packages that people can benefit from. As this industry develops, so will Singapore’s economy.
And finally, lenders are more likely to retrieve the amounts they have loaned people, thanks to these convenient loan terms.
How can the money lenders act achieve all that?
This Act’s provisions include details about maximum sums, charges, prohibited behaviour, and more. Keep reading below to learn about your rights and obligations as a borrower.
How Much Borrowers Can Get From Money Lenders
According to moneylenders rules, people in Singapore can only borrow:
- Up to six times their monthly income: Everyone earning over $20,000 per year
- $3,000: Singaporeans and permanent residents (PRs) earning less than $20,000 per year, plus foreign citizens earning between $10,000 and $20,000 per year
- $500: Foreigners earning less than $10,000 per year
There are also maximum limits depending on the loan type:
- Unsecured personal loan: $250,000
- Secured personal loan: No limit, since it is secured by collateral
- Renovation loan: $30,000 or up to six times your gross monthly earnings
- Car loan:
- Up to 60% of a vehicle’s value for cars costing over $20,000
- Up to 70% of a car’s value for prices below $20,000
Two other factors that influence loan caps that are not outlined in the Money Lending Act Singapore include:
- Total Debt Servicing Ratio (TDSR) of 55%: The totality of your monthly installments cannot represent over 55% of your gross monthly earnings
- Mortgage Servicing Ratio (MSR) of 30%: The totality of your home loan instalments cannot represent over 30% of your gross monthly earnings
Warning: Legal money lenders in Singapore can offer lower loans if you do not meet their eligibility criteria. However, they cannot go above these caps.
Prohibited Practices For Money Lenders
The money lenders act defines and gives examples of several unlawful practices in moneylending. Understanding them can put you at ease if you are worried about getting a loan.
It will also help you recognise the tell-tale signs of loan sharks and steer clear of them. Here is what legal money lenders in Singapore are not allowed to do:
Work Without License
Each legal money lender on the island either has a money lending license in Singapore or has an exemption from the Ministry of Law (MinLaw).
Warning: Loan sharks, or “Ah Longs”, may try to trick you with fake explanations why they cannot produce this license. One common claim is that MinLaw’s website is not updated in real-time. Another false claim is that their business is registered under a slightly different name. Don’t fall for it.
Advertise Their Offers
The Moneylenders Act limits money lenders’ advertising channels to the following four:
- Business directories and consumer directories
- Their business websites
- Their premises (for example, on the walls or doors of their business place)
Legal money lenders cannot post or send:
- Social media ads
- Traditional media ads, either indoors or outdoors
- Personalised messages to people’s phones or e-mail addresses
Lend Money Without In-Person Verification
Although legal money lenders in Singapore can allow potential borrowers to apply for loans online, they are not allowed to send online approvals.
You may receive a pre-approval message, but a legal money lender who abides by the law will always conduct due diligence at its official place of business. The Money Lenders Act Singapore asks money lenders to have an official headquarters with a verified address.
After the pre-approval stage, your loan officer will set up an interview to verify your paperwork and discuss loan conditions.
Warning: Loan sharks may claim that skipping this step accelerates the moneylending process. Do not fall into their trap and do not accept loans offered outside the money lender’s business venue.
Forego A Written Agreement
Legal moneylending in Singapore requires a legal contract.
If your loan officer tries to postpone writing this agreement, it should raise a red flag. Loan sharks and licensed money lenders breaking the law do not sign contracts. The paperwork trail would give the authorities ammunition against them.
Besides, a blank contract or an non-existent one allows loan sharks to change your loan conditions along the way.
Disclosing Your Personal Information
The money lenders act clearly states that moneylending agencies in Singapore are responsible for the safety and security of your information.
That said, a licensed money lender can let credit bureaus in on the details of your debt. They can also share this information with government authorities, such as the Registry of Moneylenders.
However, it cannot:
- Sell your data to other companies
- Use your information against you
- Disclose your info to blackmail, hurt, harass you or obtain any profit
Impose Higher Charges Than Legally Allowed
No legal money lender in Singapore can charge higher fees than:
- 4% monthly interest rate
- 4% late interest rate
- $60 late payment fee
- 10% admin fee
- The licensed money lender’s interest rate is calculated based on your outstanding loan balance. If your initial loan is $5,000, the first month’s interest may be up to $200. When your balance is $3,000, your interest will be $120.
- The late interest rate is calculated on the installment you miss. For example, if you have a $300 instalment for that above loan, the late interest rate will be $12. The agency cannot calculate the late interest rate using your principal amount as the basis.
- The maximum $60 late fee doesn’t depend on your loan quantum.
- The admin fee is disbursed upon loan approval. Do not confuse it with a pre-approval fee, which is usually a gimmick loan sharks use to attract more customers. The admin fee is also not a processing fee, which banks typically have.
- Legal moneylending in Singapore does not have early repayment fees.
Remember: When you add up all the charges above, this resulting sum cannot exceed the initial loan amount.
What A Money Lender Is Permitted To Do
The Money Lenders Act Singapore allows licensed agencies to:
- Set internal rules about how much money they’re lending to people according to criteria such as age, income, credit rating, nationality, and more
- Reject applications that do not fit their internal rules
- Ask to see your personal documents
- Check your credit history at legal credit bureaus in Singapore
- Hire a debt collector to retrieve the sum you owe them or seize the assets you have used as collateral if you cannot repay your debt
- Take legal action against you if you refuse to respect your legal obligations
- Use your phone number to call you and share the nature of that call with your spouse, as long as they do not make threats or harassment of any kind
Rules Regarding The Conduct Of Licensed Money Lenders
No legal money lender in Singapore is allowed to verbally or physically abuse their customers.
The money lenders act clearly states that licensed money lenders should keep a professional and calm demeanour, following the current law in Singapore. That means nobody can threaten, harass, blackmail, or injure you.
A legal money lender may seize your property with the help of a debt collector, but it cannot destroy it to intimidate you. It cannot seize your documents as collateral, nor ask for your bank account passwords when you miss a payment.
Licensed money lenders also cannot drop by your home in a group of over five people to collect the loan. This group size defines an “unlawful assembly” under the current law in Singapore.
Remember: Complain to the Registry of Moneylenders if you notice any illegal behaviour. Contact the police if you are in physical danger.
Caveats Of Money Lenders To Take Note Of
The Money Lending Act Singapore has specific caveats:
- Money lenders may call your home and share your loan details with your spouse.
- Although their behaviours are highly regulated, debt collectors are not governed by the money lenders act. Although they cannot use physical or verbal abuse as defined by the law, they have more liberty to use veiled intimidation or manipulation techniques.
Pro tip: Choose an experienced, trustworthy money lender that is open to negotiations to avoid this situation.
What A Money Lender Can Do If You Can’t Pay The Loan
If you cannot pay the loan, a legal money lender in Singapore may:
- Call, e-mail, text, or mail you to inform you about your missing payments
- Discuss your missed payments with your spouse
- Share your details with the credit bureau and law enforcement agencies
- Hire a debt collector to retrieve the owed amount or seize the assets used as collateral
- Take legal action against you
Pro tip: If you are in this situation, explore your legal options. Consider a debt consolidation loan, contact Credit Counselling Singapore for help, or try to negotiate new terms with your lender.
Take the Time To Find A Good Money Lender
The Money Lenders Act protects borrowers from predatory practices in the moneylending industry, thus helping the industry.
However, working with a legal money lender is not always enough. This Moneylending Act does not guarantee the right partner for your needs.
It does not ensure access to the best financial package or the peace of mind offered by stellar customer support.
Besides, some loan agencies may not negotiate new terms if you cannot repay your debt. They will immediately contact a debt collector or take the property you used for securing the loan. It all depends on the lender you choose.
Licensed money lender Credit 21 is the trusted alternative you need. Our user-oriented, expert loan officers will stand by your side from the moment you send your application until you pay your final installment.