Some people are still in the habit of borrowing from moneylenders in Singapore.
Personal loans with high interest, short-term loans can lead to substantial financial damage in the past that make it almost impossible to repay.
Why is Borrowing From Moneylenders in Singapore a not a good Idea?
People with bad credit scores, or who have an income too low to qualify for a bank loan will mornally approach Licensed money lenders as a last resort.
The interest rate charged by moneylenders is so high, it can be effectively impossible to repay the debt in the past.
If you were to borrow S$1,500, at a rate of 48 per cent per annum, you would owe around S$2,400 by the end of the year.
At the end of 3 years, the amount owed would be around $6,155, or more than four times the initial sum borrowed.
Moneylenders in Singapore are allowed to charge up to 48 per cent interest per annum.
This is twice the interest rate of a credit card, and around eight times the interest rate of most personal loans.
However, Borrowers to face stricter cap on moneylender loans
With the new changes (Nov 2017), Borrowers will have their loans capped at an amount that applies across all licensed moneylenders, under proposed changes to the Moneylenders Act.
This also prevent people from borrowing beyond their means.
Previously, there is a no cap on loans taken from individual moneylenders, meaning borrowers can still approach other registered moneylenders.
Under this new changes, those with an annual income of less than $20,000 may borrow up to $3,000 from all moneylenders combined.
Other individuals may borrow up to six times their monthly income from all moneylenders combined.
Moneylenders cannot provide loans beyond the cap, and must obtain credit reports from the Moneylenders Credit Bureau (MLCB) to check if a borrower has exceeded the limit before issuing a loan.
Moneylenders can obtain the reports online, and moneylenders have to update the bureau after dispensing the loan.
Any moneylender who fail to obtain the MLCB credit report will be fine of up to $20,000 or six months in jail, or both.
What are the interest rates moneylenders can charge?
If your annual income is less than $30,000, the interest rate which moneylenders can charge, for both secured and unsecured loans, is capped at:
13 per cent Effective Interest Rate for secured loans; and
20 per cent Effective Interest Rate for unsecured loans.
The Effective Interest Rate takes into account the compounding effect of the frequency of instalments over a one-year period.
This means that Effective Interest Rate better reflects the actual cost of borrowing over a one-year period.
If your annual income is $30,000 or more, the caps are not applicable and interest rate is to be agreed upon between the moneylender and the borrower.
Will the proposed rules cause borrowers to turn to unlicensed moneylenders?
Authority can only educate people on the dangers of borrowing from loan sharks at this moment.
Do not borrow from unlicensed moneylenders.
To verify that a moneylender is licensed, Click here to access the list of licensed moneylenders.
- Use abusive language, or behave in a threatening manner towards you.
- Ask for your SingPass user ID and/or password.
- Retain your NRIC card or any other personal ID documents (e.g. driver’s licence, passport,work permit, employment pass or ATM card).
- Ask you to sign on a blank or incomplete note of Contract for the loan.
- Grant you a loan without giving you a copy of the Note of contract for the loan and/or without properly explaining to you all the terms and conditions.
- Grant you a loan without exercising due diligence (e.g. approving a loan over the phone, SMS or email before even receiving your loan application form and supporting documents, such as the income tax assessment and payslips).
- Withhold any part of your principal loan amount for any reason.