How to Legally Borrow Money from Licensed Moneylenders in Singapore
There may be instances, including emergency situations, where you find yourself in a bind without being financially liquid or without enough savings. In these circumstances of financial need, there are several options you may take in order to obtain the money you may need to shell out.
You can, of course, try to borrow from friends and family, in which case an IOU may be drawn up stipulating the terms of the simple loan agreement. You can also borrow from a licensed moneylender, and the details of taking a personal loan from such licensed moneylenders will be the subject of this article.
Who are Licensed Moneylenders?
According to the Moneylenders Act, a moneylender is one who, whether they act as the principal lender or as an agent to a moneylending institution, carries or holds himself out as carrying the business of moneylending.
Under the law, no person is allowed to be a moneylender unless they are authorised to do so by licence, or they are excluded or exempt moneylenders under the Moneylenders Act.
Excluded moneylenders, include, amongst others, those who are permitted to, or not prohibited from, lending money under any other written law (other than the Moneylenders Act). For example, a pawnbroker licensed under the Pawnbrokers Act.
Exempt moneylenders are those who have specifically been granted exemption from holding a moneylender’s licence based on the discretion of the government and subject to approval of application for exemption, as provided under the law.
How Can I Know If a Moneylender is Licensed?
To allow individuals to verify that a moneylender is indeed licensed, the Ministry of Law has compiled a list of licensed moneylenders in Singapore, which you can find here.
Moneylenders are also prohibited from soliciting loans via text messages or phone calls, so if you are approached to obtain loans in these manners, it is likely that the moneylender may be unlicensed.
Licensed moneylenders may advertise their business only through:
- Business or consumer directories in print and online media;
- Internet websites belonging to the licensee; and
- Advertisements placed within, or on the exterior (e.g. side of the wall, door shutter, gate or window) of the approved place of business.
What are some prohibited practices for licensed moneylenders?
Furthermore, even while a moneylender may be licensed, the following unfair practices are not acceptable:
- Use of abusive or threatening language;
- Asking for your SingPass ID or password;
- Not returning your NRIC card or other important personal ID documents like ATM card or passport;
- Asking you to sign on a blank or incomplete Note of Contract for the loan;
- Granting you a loan without explaining the terms or giving you a copy of the loan contract or without exercising due diligence (such as approving the loan via SMS without first obtaining your loan application form and supporting documents); and
- Withholding any part of the principal loan amount for any reason.
In instances where this happens, you should report the moneylender to the Registry of Moneylenders at the Ministry of Law (see below).
Prior to Borrowing from Licensed Moneylenders
Determine your ability to abide by the contractual terms
Prior to borrowing from licensed moneylenders, it is important that you determine whether you will be able to abide by the contractual terms of the loan. This is because borrowing from a licensed moneylender legally obliges you to fulfil the moneylending agreement based on stipulated terms and conditions.
This includes the repayment of the loan itself and any other interest charged (e.g. nominal interest and late interest – see below) on the loan.
Hence, you should first gauge whether you are able to abide by the contractual terms of the loan by taking into consideration factors such as your own income and other financial obligations.
Where possible, it is advisable that you only borrow what you can repay given your personal circumstances.
What happens if I do not abide by the contract terms?
Depending on the terms of the contract, failure to abide by the contractual terms (such as not paying the loan on the specified repayment date) may result in late interest charges.
This means that the longer you are unable to repay the loan (on time) the higher the value of your debt will likely be. This is if late interest charges are imposed as a penalty for non-compliance with the contractual terms.
What are the interest rates moneylenders can charge?
The maximum interest rate moneylenders can charge is 4% per month for the value of the borrowed money (i.e. nominal interest) as well as for each month the loan is paid late (i.e. late interest).
Interest charged on the loan is to be computed on the monthly outstanding balance of the principal remaining after deducting the payments made. For example, if your loan amount is $20,000, and you have repaid $10,000, then the 4% interest rate will be computed for the remaining $10,000.
On the other hand, late interest is to be computed based on the amount overdue. For example, if you are paying on instalment basis of $5,000 per month, which you were unable to pay in time, then the 4% additional late interest charge will apply only to the $5,000.
Other fees incurred
Licensed moneylenders may also impose other fees as provided by law. These are:
- Loan approval fees: up to 10% of the loan principal
- Late payment fees (whether for repayment of the principal or interest): up to $60 per month
- Legal costs incurred by the moneylender for successful recovery of the loan
However, the total charges imposed by a moneylender on any personal loan, consisting of interest, late interest, upfront administrative and late fees also cannot exceed an amount equivalent to the principal of the loan.
For example, if you take a loan of $10,000, then the interest, late interest, administrative fee and monthly late fees cannot exceed $10,000.
Beware of caveats
Also, beware of caveats that may be lodged against your property as part of the terms of your loan. In cases of default in the payment of your loan, agreeing to put a caveat on your property may grant the moneylender the right to obtain repayment of the loan from proceeds of the sale of your property.
What this means is that you may not even get anything from the sale of said property, especially if the value of the property is equivalent to or less than the value of your debt, because the proceeds will automatically be used to pay back the moneylender.
What are the Requirements to Borrow Money from Licensed Moneylenders?
A duly completed application form must be submitted to the moneylender, which includes the borrower’s particulars such as the:
- Full name;
- Date of birth;
- Personal identification number;
- Residential address;
- Email address (if any);
- Contact number; and
- Amount of loan applied for.
If there is a surety to the loan, then the particulars of the surety must also be included. A surety is any person/s who guarantees to pay back the loan, including the corresponding interests and charges, in case the borrower is unable to do so.
Supporting documents must also be submitted to the licensed moneylender in order to proceed with the loan application. These may include:
- Proof of the borrower’s total income for the preceding 3 months prior to loan application;
- Utilities bills;
- Pay slips; or
- Income tax statements.
Foreigners residing in Singapore may also borrow from licensed moneylenders in Singapore and may be required to submit additional supporting documents other than the ones stated above. These documents include:
- Original valid employment pass;
- A copy of their tenancy agreement;
- Appointment letters from the borrower’s employer; and
- Bank statements.
How Much Can I Borrow?
For secured loans, there is no cap to the loan amount. A secured loan is a loan for which an asset is used as a collateral. Should the borrower be unable to pay the loan, the moneylender may seize this asset.
For unsecured loans however, there is a total maximum amount that may be borrowed from licensed moneylenders, as shown in the table below:
|Annual Income of Borrower||For Singapore Citizens and Permanent Resident||Foreigners residing in Singapore|
|Less than $10,000||Maximum of $3,000||Maximum of $500|
|Between $10,000 to less than $20,000||Maximum of $3,000|
|At least $20,000||Up to 6 times the monthly income|
What Must Moneylenders Inform Me About Before They Grant Me a Loan?
Before granting any loan, the moneylender is required by law to inform the borrower in writing, the terms of the loan, including information on the:
- Nominal interest rate
- Late interest charges
- Other permitted fees to be charged; and
- Instalment payment details in cases where there is a fixed period agreed upon for the payment of a fixed amount of money, until the debt (plus corresponding interest) is fully paid – also known as a term loan.
All moneylenders are also required to give borrowers a cautionary statement which warns the borrower of the abusive conduct carried out by some moneylenders. Borrowers are also subsequently informed about where to lodge a formal complaint if necessary.
What Happens after the Loan Has Been Approved?
After a loan has been approved, the moneylender has to deliver to you the correct principal amount of the loan. The moneylender is permitted to deduct upfront a loan approval fee of only up to 10% of the principal amount.
Once you receive the proceeds of the loan, the obligation to repay the loan now arises, based on the terms agreed upon.
As the borrower, make sure you are also aware of the following things from the time you receive the money obtained through the loan and even during or after payment:
- Obtain a copy of the loan agreement;
- Make sure the moneylender issues a receipt every time payment is made;
- Make sure a statement of account stating the moneylender’s particulars is issued at least once every January and July for all the outstanding loans, including a list of payments made and the remaining balance of the account/s; and
- Retain, for safekeeping and documentation, all copies of statements of account/s and receipts of payment.
What If I Can’t Repay the Loan?
There are ways to handle any situation where you cannot immediately pay for the money you borrowed. In some instances, you can try negotiating with the moneylender for an extension or refinancing plans, but this may come with additional fees. It is advisable to do this before the loan – or the next instalment in a term loan – is due so as to avoid possible late payment charges.
If a borrower is persistently unable to pay back the loan, moneylenders have the legal right to sue the borrower, especially in cases where the loan has been secured by an asset.
However, if the borrower is unable to pay debts amounting to at least $15,000, he may resort to filing for bankruptcy, which freezes the accumulation of interest charges (and thus increased debt), as well as bars moneylenders from commencing legal proceedings until the borrower has been discharged from bankruptcy.
If total debts do not exceed $100,000, the Debt Repayment Scheme (DRS) is also a viable alternative to bankruptcy. In this scenario, the borrower is assisted by the Official Assignee from the Ministry of Law’s Insolvency Office to work out a suitable repayment schedule for all outstanding debts over a fixed period of time.
The DRS prevents moneylenders of unsecured loans from taking any legal action against the borrower, unless permission by the court is given.
What Can I Do If a Licensed Moneylender is Harassing/Threatening Me?
Harassment and threats in the pursuit of debt collection may be considered as unfair practices and subject to regulation by the Registry of Moneylenders, as stated previously. In these instances, you can contact the Registry at 1800-2255-529 to lodge a complaint.
Alternatively, you can submit your complaint online through this feedback form (select “Registry of Moneylenders” and “Feedback & Complaints” as the main and sub-categories respectively).
Your complaint should include information about the moneylender such as the business name, license details and contact numbers. To facilitate the investigation, you may be asked for an interview with the handling officers so that you can provide the necessary details of the loan transaction.
You may also make a police report as the police force takes harassment matters seriously.
While there may be instances where borrowing from a moneylender may be the most feasible solution to anyone’s financial issues, it is advised that a potential borrower first do their due diligence in terms of both their capacity to repay the loan, as well as the reputation of the potential moneylender.
Knowing that obtaining a loan creates a legal obligation, it is especially important not to make these kinds of decisions lightly.