There are many money lenders in Singapore, both licensed and unlicensed, willing to offer you a loan whenever you need it. Often, people request for loans when emergency needs arise. During such periods, it may be too easy to turn to any moneylender for help without conducting a proper check on the legitimacy of the lender.
Needless to say, not all moneylenders you come across in your time of need play by the rule. You should be careful not to opt for ‘loanshark’ lenders that may end up sucking your wallet dry due to excessive interest rates.
So, how do you differentiate between a licensed and unlicensed moneylender? Here are the five qualities that will help you in distinguishing the wheat from the weeds.
1. Transparency in loan contract terms
There’s this thing with anything that is illegal, it is never transparent. But, a licensed money lender will present you with straightforward and open contract terms about your loan.
A licensed money lender will be willing to explain every piece of the contract to you and if you’re unable to understand any part of your contract terms, he will be ready to answer all your questions. A licensed lender wants to make sure that you’re satisfied before signing the papers.
2. The legitimacy of the contract
It is not enough to put your hand on just any paper presented to you. It has to be a legitimate and binding contract prepared by a lawyer.
A legal moneylending contract must include the following details:
- Interest rate
- Late payment fees
- Repayment period
- Repayment options
Take caution that you do not put a signature on an incomplete or blank paper. Also, watch out for someone that offers you easy loan approval in Singapore without first signing the contract.
3. Licensed lender complies with the Moneylenders Act
A licensed moneylender always plays by the rules. Singaporean law restricts moneylenders from giving out loans above the maximum amount based on the borrower’s annual income.
You can check this guide from the Ministry of Law on how much you’re allowed to borrow based on your annual income.
4. Reasonable interest rates on loans
Unlicensed money lenders are known for high-interest rates when giving out loans. The laws of Singapore on October 1st, 2015, provided a guideline to moneylenders. They are to allowed to charge only a 4% interest rate on money borrowed. On the other hand, ‘loansharks’ are known to demand exorbitant interest rates as high as 40% from borrowers.
5. The authenticity of licensed lenders
You can find a list of licensed moneylenders on the official website of the Ministry of Law. These are the ones that are recognized and registered according to the Moneylenders Act in Singapore. Take note, however, that some licensed moneylenders who recently got their approval may not be on the list yet. In this instance, try to double-check by calling the office of the Ministry of law on 1800–2255–529.
As a bonus, watch out for moneylenders that do not operate from a physical office. A moneylender without a physical address is definitely a red flag. Finally, that moment may indeed come when you will need money to care for something very urgent. However, do not allow your desperate need for cash to put you at the mercy of ‘loan sharks.’