Unlike popular belief that keeps people from getting near to one, licensed money lenders are really here to help you tide through your financial crisis.
Thinking of getting a quick loan, but are afraid of even stepping into store as you think you might get “cheated” into something that you can’t turn back, or maybe you think you are lacking “financial smartness” and would get you into trouble?
Seriously, stop worrying too much.
Licensed money lenders are just like any other businessmen. True that they are here to make money out of this business, but definitely not on the expense of their customers (what would happen if everyone loses? Who would be borrowing still? It makes no business sense at all).
To give you more confidence of understanding loans, we come up with these 17 myths of licensed money lenders in Singapore that is preventing you from taking your loan, and why you should take one TODAY.
1. Why do I need to take a loan even when I am not financially inadequate?
Loans are not only facilities that are available for people who are in dire financial straits; you can apply for and take up a loan when facing different circumstances. Most commonly, people want to use their savings to make luxury purchases in order not to impact the state of their cash flows.
You have often heard that you should avoid taking up loans where you can save up for something. However, such people often overlook the true worth of a loan: enabling you to do now, what you couldn’t do otherwise.
While using the method of saving can seem very good on paper, in reality, there are many reasons to take up loans that have nothing to do with the current state of your finances.
2. What kind of emergencies would actually lead me to take a loan in the first place?
You May Have Other Needs:
You may want to buy a house or car or other asset, and have enough saved up to cover most of the payment. However, at the same time, you encounter a more urgent/pressing matter demanding for the same funds you had saved up for your project. In such cases, will you want until you have saved up enough to buy the house, car or other assets?
Certainly not. It could be a very long time before you have that kind of money saved up. A loan on the other hand, affords you the opportunity to get the assets you want right now, given that you can still manage to make repayments. There is no need to leave for later what you can get now, especially if you have the ability to repay the loan comfortably.
3. What possible situations that could happen and leading me to consider a loan?
As economies grow, stagnate and decline, the prices of various market products increases and decreases accordingly. Sometimes, you find yourself in a very conducive setting where the market forces have driven prices down and the cost of borrowing is low as well. In such cases, it would be wise to take advantage of the situation by acquiring borrowing at a lower rate and getting that car, home or appliance you wanted.
That way, you can leave your savings intact to use when you really need them, and have no other avenue of raising the finances that you need.
4. Why would I want a loan when I am earning enough?
Some people prefer to save up with investment plans that offer interest on a compounded basis. This means that interest grows as the amount and duration of saving increases. The longer that you save, the returns that you get can be higher than your saving and sometimes even higher than the interest on a loan.
Hence, instead of sacrificing your ever-growing savings to buy an important asset or for any other reason, you can take a loan to cover the need, knowing that your returns through interest in your savings will cover the cost of financing. Otherwise, you will have lost your progress, and this can take you a few steps back, since it could be very long before you achieved the amounts that would guarantee you the kind of savings you see today.
5. I currently live with my parents and renting my house for extra income. Why would I still want a loan?
If for instance you’re looking to buy a second home, you can take a mortgage on the home, and the repayment of the loan covered by rental income from a tenant in the house. Depending on the location of the property, you can gain even more than you’re paying to the mortgage by charging a higher rent than your mortgage repayments.
As you see, the loan could help you to earn extra income. In its absences, you would wait for many years before you save up enough money to buy the house in cash. In the meantime, you have denied your family the income that you would have received if you had taken up a loan.
6. Why would I consider a loan to buy land?
Appreciating assets like land and homes offer the opportunity for you to grow your equity over time, making them a worthy investment to borrow a loan for. For example, you can buy a piece of land worth SGD 100,000 today, which appreciates at the rate of 2% every year. In ten years, the value of the land will be SGD 122,000, much more than your initial investment.
In addition, you can use the piece of land to generate income, which can cover the cost of obtaining the loan in the first place, hence increasing your revenue stream and enabling you to meet your expenses more comfortably. This does not only apply to land, it can also apply to prime property in prime locations.
Provided you can afford to meet the repayment for the loan without straining too much, all you need to do is make your calculations and find out whether a loan is a useful tool for your next investment goal. It’s all about the mathematics.
7. Are there different kinds of loans?
Before you even apply for a loan you need to understand there are 2 types of loans in Singapore: secured and unsecured loans, meaning that if you are looking to apply for a loan in Singapore, one major aspect that you will need to settle very early in your borrowing cycle: whether you will be pledging security for your loan or not (Security/collateral/surety is an asset of value whose rights you sign over to a financial institution in exchange for a loan amount).
In layman terms, this means that should you be unable to repay the loan on time, the lender can take over the assets given as security, sell it off and recover the remaining amount on the loan defaulted on. In the absence of security, a loan offered to a borrower does not have assurance by an asset. If the borrower defaults (defaults here means that inability to pay up), the lender has no right to seize the property of the defaulter unless after court action and direction by a judge.
8. What is a secured loan, actually?
Not every asset an individual has is pledge-able as collateral to acquire a loan. The asset’s value must be worth more than the amount borrowed plus the full interest to be paid. For instance, it can be your home or other real estate property or your car. When you sign over your rights to the asset, the lender places a lien on the asset.
The lender will hold all the titles to the property including duly signed transfer forms waiting to be effected if you default on the borrowed amounts. Most mainstream lending institutions like banks offer loans on secured basis, since this reduces the risk of lending for the establishment.
Secured financing is also the only way to obtain large amounts of money. Singaporean banks will not offer to lend sums of money larger than four times of your monthly income unless there is collateral to guarantee the loan in case of defaulting.
Examples of secured loans include mortgages, where the value of the house is the security for the loan. The amount of the loan should be less that 80% of the property’s current market value to protect the lenders from losing their investment in case the value of the property declines.
In cases where the asset value declines below the sum left outstanding on the loan, the lenders will demand lump sum payment to cover the amount owing.
9. What is the advantages and disadvantages of a secured loan?
The advantages of a secured loan includes:
- Secured loans offer lower interest rates since they significantly reduce the financing risk
- You can borrow large sums of money and for longer periods, and repayment schedules are more lenient.
The disadvantages, as compared:
- If you default on your loan, the bank/financial institution has a right to seize your property and sell it off to repay the outstanding amount on the loan.
- In case of default, amounts repaid on the loan will be irrecoverable. For instance, if you default on a mortgage, payments to date will be converted to rental payments; hence you completely lose your investment.
- Borrowers are limited regarding the kind of assets they can offer as security.
- Secured loans take longer to process since there is more paperwork involved – asset valuation, transfer transactions etc. in addition to the normal loan application process, which would be a pain if you are looking for an immediate solution. Detailed credit checks would also be done since the amounts borrowed are much higher, and if you happen to have a lower credit score (e.g. you are not paying your credit card bills on a regular basis), it’s more difficult to obtain financing from this kind of loans.
10. What is a unsecured loan, actually?
The exact opposite of secured loans, unsecured loans are amounts borrowed and lent in the absence of assets, which borrowers pledge to protect the lender’s investment in case of defaults on payment. The lender’s only recourse becomes to initiate legal proceedings against the defaulter.
In such cases, the court will order the defaulter to pay the outstanding amount. If he/she is bankrupt, the court may order his/her property sold to repay his debts. Even then, a lender does not have an assurance of regaining their investment, since the borrower could have many creditors who have to be paid first.
Therefore, because of the higher risk of lending involved, unsecured loans have a limit as to the amounts that can be lent. In Singapore, citizens who earn up to $30,000 can get between two and four times their monthly income. Those above that can negotiate specifically with lenders, who assess their financial position and approve the borrowing or not.
In addition, secured loans have significantly higher interest rates, because the lender wants to recover the principle amount much faster to reduce the risk to themselves. This means that even if a borrower defaults and they are completely unable to recover outstanding loan amounts, they will at the very least have recovered the principle sum owed.
Examples of unsecured loans include personal and payday loans from licensed moneylenders, credit card debts, education and student loans among others.
Depending on the specific details of the loan, you may or may not be turned down for an unsecured loan if you have a bad credit score. If the amount is significantly high and the repayment period longer, the lender is more interested in your credit score. However, if you apply for small amounts for short periods, they present minimal risks, you can still get financing.
11. What is the advantages and disadvantages of an unsecured loan?
The advantage of a unsecured loan includes:
- They do not pose a risk to your assets.
- A quick solution financially for those with lower credit scores
- They are faster to process, since the checking of asset valuation is not as stringent
The disadvantages, as compared:
- They come at a higher interest rate compared to similar secured loans (which is due to the fact that they do not touch your assets in unforeseen circumstances).
- They are limited regarding the amounts that can be borrowed, usually a maximum of 4x your monthly salary.
- They have stricter repayment schedules with higher installments to limit risk to licensed money lenders
12. What are the kinds of money lenders in Singapore? Are they all “ah longs”?
In Singapore, you might think that loan-sharks or “ah longs” lurks around dark corners and waiting to “prey” on you. You must have been watching too much dramas.
In real life, they are not much differences between a licensed from an unlicensed one which you can tell straightaway. But here are some of the things you can do as a background check before “signing the papers”:
Before you accept a loan from any money lender, you must make sure that such has a license number, and that its documents are legitimate. The Registry of Moneylenders in Singapore has an official website that has posted a full list of all the licensed moneylenders registered with it (updated as of 1 December 2014, at this time of writing). The registry updates the list on a monthly basis and it places the list there to help customers verify details offered by potential moneylenders. So remember to do a double check with this list before borrowing!
In addition, you must know as much as you can about the money lending firm that you intend to conduct business with before signing for a loan from it. There have been instances when an unlicensed money lender or loan-shark has impersonated a licensed money lender. This is why you must demand for an original certificate from the lender then you can compare details on the certificate to the information provided on the Ministry of Law website.
Ensure extreme caution throughout your research process so that you do not fall victim to the schemes of unlicensed moneylenders. Conduct your research thoroughly and find out all the terms and conditions under which different lenders would offer you the loan that you need.
13. How do I tell a licensed money lender from an unlicensed one?
Here are a few ways you can identify whether or not a lender is licensed:
They will obtain your personal information for verification:
A licensed moneylender may request to see your NRIC card or other personal identification documents in order to verify your identity. However, it should not tell you that it wants to keep the documents – driving licenses, work permits, passports, employment passes or ATM cards.
If the lender needs to, it can make a copy of your ID document for its file, but must return the original to you promptly after verification. Some unlicensed moneylenders also slyly request that you give them your SingPass Username and password – this is highly irregular, and under no circumstance should you reveal such information to any money lender.
In some cases, an unlicensed money lender will offer you a lower interest rate on a loan if you give your ATM card to him/her for some time. DO NOT buy into this! Usually the lender may hack into your account, use your money for illegal money lending and then return it before the agreed period expires. Remember that assisting an unlicensed money lender is a punishable offence in the laws of Singapore.
14. What should I look out for in case the money lender is an unlicensed one?
Signing blank papers or incomplete contracts:
This is a definite characteristic of an unlicensed money lender. No licensed lender would ever require you to sign a blank or incompletely filled Note of Contract. On the contrary, the lender will duly fill every section, give you two copies of the contract and leave your some time (24-48 hours) to go through the terms and verify them.
You can ask as many questions about terms of the contract prior to signing, and you are under no obligations to take up a loan with any lender up until the point of signing the contract. Ensure that you are familiar with the terms of the borrowing guide for borrowers given in the Registrar of Moneylenders’ website.
A licensed lender should never ask you to reveal any private information like your passwords. These include ATM passwords, bank account login information and SingPass passwords. Neither will it ask you to sign incomplete contracts. Anyone who does this is probably unlicensed but staging as a licensed money lender. Most if not all licensed money lenders requires you to meet them face-to-face in order to understand your situation better, and also for you to login to the necessary websites (e.g. CPF Board) to obtain the necessary documentations.
There are very few ways through which licensed money lenders are allowed to advertise their services (see DIRECTIONS OF THE REGISTRAR UNDER SECTION 16(3) READ WITH SECTION 26(1) OF THE MONEYLENDERS ACT REGARDING THE ADVERTISING & MARKETING ACTIVITIES OF LICENSED MONEYLENDERS). They can only place their services in:
- Consumer and business directories within online or print media
- Official online websites of the licensed money lender
- Advertisements within or on the exterior of the building registered as official business premises of the lender
Hence, all other channels are prohibited including passing flyers and brochures, street or door-to-door marketing, marketing during conferences and other events, SMS and telemarketing, banners in locations other than business premises, internet banners and pop-up ads, email advertising, adverts in magazines, newspaper and other online/print publications.
If you see any adverts from these channels, you know the lender is not licensed, and hence you should avoid them. Stay away from and report anyone who pressures you to take a loan through any of the disallowed measures. Licensed lenders will not call you frequently, nor would they transfer funds into your account before you have officially signed the Note of Contract, a copy of which is yours to keep.
General behavior of the lender
The general conduct of a lender can also tell you whether it is unlicensed or not. Licensed moneylenders will offer good customer service and use polite language, whether you are transacting in person, on phone or via email. Stay away from lenders who seem like they are rushing you into signing a Note of Contract, or provide hedgy information when you ask questions.
If you hear that a lender used harassment or threatening techniques to get repayment from a debtor, then that is not a licensed lender. These include splashing paint on debtors’ premises, locking their premises, posting graffiti on their walls, sending threatening notes and/or damaging their property.
Even if you are in desperate condition, looking up a potential and licensed and legal money lender thoroughly could save you the trouble of signing with unscrupulous dealers who will make your life even more difficult.
15. What makes a reliable money lender?
It is not always easy to find the best moneylender from a market that is so saturated. There is a lot that goes into the process before you end up with the best lender. You have to carry out extensive research into the lender’s background and working practices. This article examines a few characteristics of reliable, registered and licensed money lenders to make it easier for you to identify them.
Check it’s registration or licensed number on it’s website
The first step is to make sure that the moneylender is registered according to the laws of Singapore and it has a licensing number. You should only conduct business with licensed moneylenders because they have met all requirements established in law to protect your interests. These lenders will have all the permits and licenses that demonstrate their compliance.
To make sure that your moneylender is duly registered, demand that it shows you its registration documents and confirm the license number against the number displayed with the Registry of Moneylenders website. Do not be satisfied with verbal confirmation only.
16. How do I know if I am getting a loan from the best money lender in town?
Begin by looking through the money lender’s reputation
By looking into the reputation of the moneylender, such as checking if the money lender’s site looks like a professional looking one, or just something that is quickly pieced-up for the sake of forming a website, would tell you much of the professionalism of the lender. There are moneylenders who may have licensing, but have no reputation to speak off. You should give these a very wide berth. Make sure that the potential lender you intend to engage with has an impeccable reputation and reviews from trusted sources. Part of a good reputation will mean that the moneylender has been in business for respectable period, having served a relatively many clients. Such moneylenders’ reviews will be available in the many review sites available online. Dealing with a moneylender with questionable reputation is just one way to land in unnecessary trouble, including legal disagreements, which could have been avoidable.
First things first, always check the Internet
Before the age of the Internet, researching moneylender services was rather painstaking. Because there was almost no way to get reviews from a variety of unbiased clients, you had to settle for referrals from people you know and trust, and then cross your fingers and pray it turns out okay for you too. However in today’s time, the Internet has made research on moneylenders a piece of cake. To begin with, you can go to the official Registrar of Moneylenders’ website to find out whether the moneylender appears in the list of licensed moneylenders. Ensure that the license number and exact name matches the registration certificate the lender shows you. Virtually all money lenders in Singapore have websites, therefore you can check out products and services offered by the lender through the website. Examine different rates for money lending as well as the quality of the website itself. Avoid any that provides half-baked information with no contact details. Evaluate different lenders’ interest rates and read through their terms and conditions. You should also know the penalties chargeable for not abiding by their stipulated terms and conditions. Also find out if there are any penalties charged for early repayment, especially if you are looking for a medium-term or long-term loan. You can also check our Singapore review sites where past clients go to post reviews of former service providers. You need to be careful about this: some lenders goes up to these sites and post reviews claiming clients offered them only. You can contact some clients who have post reviews to determine whether they exist and if they are the ones who posted the review. Look through many reviews to make a more accurate assessment of the services they offer.
Check the interest rates they are offering
One of the advantages of using a licensed moneylender registered under the Moneylenders’ Act is that the government has established threshold for interest rates of both unsecured and secured loans. These moneylenders are not allowed to go above them. Remember that even a ‘point-something’ difference can end up making a difference especially if you are borrowing for a longer period. Another important characteristic is that licensed moneylenders are required to calculate the effective interest rate (EIR) for your loan and to show the same to you at the time of borrowing. The EIR is an extension of your interest rate calculated based on the repayment plan. Different repayment plans offer different EIRs, therefore you want to be sure that you get the best plan.
17. Seriously I am confused who to pick. What do you suggest?
Comparing the Money Lenders
Do not settle for the first money lender who you think offers a deal that’s good enough for you. After your online search, visit offices of your top contenders and look at the environment in which they work – does it look respectable? Next, engage them in lengthy discussion about their various terms. A licensed money lender should answer all your questions comprehensively without getting annoyed or using abusive language or threats. If you notice such things, stand up and walk away. Or you could even report such behaviors to the authorities. Ask as many questions as you need to ensure that you fully understand everything about the loan you’re about to receive.
Lastly with all the points above checked, do not sign a loan agreement without reading through every term and seeking clarification for what you don’t understand. You can take a day or two to pass it by your legal advisor. Also, ensure the lenders have completely filled the loan agreement before you sign it – some lenders may give you an incomplete contract only to insert other terms after you have signed. You should have a copy of the Note of Contract. Keep all documents relating to the loan safe until completion of repayment.
If you have any further queries regarding which lender to choose from, send us en enquiry message and we can guide you along, otherwise you can also check this list for some of the more reliable money lending firms.
Thank you for your time and you can expect much more coming up! Please help us to share this article to anyone who you think would benefit from this piece, and you might be the key to help him/her make the right decision!