Looking to borrow from a licensed money lender but are afraid of the extra charges? Contrary to popular belief, it is illegal for a licensed private money lender in Singapore to charge extremely high interest rates.
Licensed money lenders are regulated by the Ministry of Law, and must follow the set guidelines on interest rates, various fees and charges, as well as the ways they can conduct business.
Here are the five most important things you need to know about private money lenders’ interest rates.
1. The interest charged can only be imposed on the remaining balance
The borrower should only be charged interest on the remaining amount that needs to be repaid. The computation of interest charged on the loan must be based on the amount of principal remaining after the deduction of payment made. For example, if you take a loan of $20,000 and repaid $6,000, only the remaining $14,000 can be taken into account for interest.
2. There is a maximum interest rate imposed
A licensed money lender in Singapore can only charge a maximum of 4% monthly interest rate to prevent borrowers from going into debt paying rounds of hefty interest rates that never seem to end.
The 4% private money lenders’ interest rate (or licensed money lenders’ interest rate) cap applies regardless of your income and whether the loan is an unsecured or secured one. If you fail to repay the monthly instalment on time, the maximum late interest rate a money lender can impose is still 4% per month for each month the loan is repaid late.
3. The late interest can only be charged on the amount that was paid late
For instance, if you take a loan of $15,000 but fail to pay the first instalment of $3,000 before your due date, the licensed money lender can charge the late interest on the $3,000 but not the remaining $12,000 that is not yet due.
It is best practice to always make your monthly repayments on time. A good tip would be to automate payments with your checking account so you can pay on time and avoid late repayment charges and late interest fees altogether.
4. Licensed money lenders aren’t permitted to raise your interest rates as and when they wish to
Just as a borrower is expected to abide by the mutually agreed, signed loan contract and all its terms, a licensed money lender is not allowed to raise your interest rates on a whim just because they think you can afford to pay more for your loan. The interest rate that applies to your loan contract is legal and binding!
5. You may be able to obtain select interest-free loans
As illustrated above, licensed money lenders can charge a maximum monthly interest rate of up to 4%. That being said, some licensed money lenders offer interest-free loans for select loans, such as payday loans.
Even though interest-free loans sound absolutely enticing, consider taking a loan only if you really need one, not because you want to get in on the interest-free loan bandwagon for the thrill.
Remember, all loans come with processing fees. Licensed money lenders in Singapore typically charge 8%-10% in processing fees for every loan taken by borrowers.
There’s a limit to the total charges a licensed money lender can charge
The total charges imposed by a licensed money lender on any loan —including interest, late interest, upfront administrative, and late fee— cannot exceed an amount equal to the loan principal. For example, if X takes a loan of $10,000, the interest, late interest, up to 10% administrative fee, and monthly $60 late fees cannot exceed $10,000.
Interested in securing a loan from money lenders with low interest rates? Find out more about legal loan options with CompareSing. It is possible to obtain licensed money lender low-interest loans especially if you have a good credit history.
