Depending on who you’re taking a personal loan from in Singapore, the interest rates can vary. Case in point, Singapore licensed money lenders’ interest rates and banks’ interest rates will never be the same. In fact, they are quite different.

Not only are licensed money lenders’ interest rates different from banks’ interest rates, but they are also calculated differently.

In this article, we’ll dive deeper into flat rate personal loan interest rates, reducing balance personal loan interest rates, as well as everything else you need to know about Singapore licensed money lenders’ interest rates, such as the legally allowed private moneylending rates they can charge, the other fees and charges that may apply, the usual money lender interest rates charged by private lenders, and more.

What is interest?

When you borrow from someone, they’re doing you a favour. But when you borrow money legally from a licensed lender, bank, or any other financial institution, giving you a loan is equivalent to offering you a service.

In exchange for lending you a sum of money for a said period of time, interest is charged on the loan based on the agreed interest rate. Other fees and charges may kick in, too.

In short, interest is the price that you pay to borrow money. In case you’re wondering, there’s no free lunch in the world — legal loan providers are also businesses that aim to thrive in the moneylending industry.

How does one calculate a licensed money lender’s interest rates?

Using the reducing balance method, you’re able to calculate a licensed money lender’s interest rates in Singapore, which we’ll take a closer look at in a jiffy.

Types of interest rate calculations to know about

Typically, there are two types of interest calculations commonly adopted by loan providers. You should know the difference between the two so that you can make accurate comparisons when looking for the most favourable personal loan that works for you.

Flat-rate personal loan interest rates

First, there is the flat rate interest rate. This is an uncomplicated way to calculate interest. When it comes to flat rates, your interest amount is calculated based on your original loan amount throughout the duration (tenure) of your loan.

What this means is your interest amount remains constant, without reducing, even though your pending loan amount might be reducing as you repay it. Flat rate calculation is very common when it comes to personal loan interest rates.

Here’s an example of what it means to have a flat interest rate of 2% interest rate, for a loan of $12,000 to be repaid over 12 months.

In this case, it doesn’t really matter how much of your loan you repay within a certain duration. Your interest payable will always remain at $20 a month. This interest amount will be incorporated into your monthly repayments.

In the above example, you’ll have to pay $20 in interest every month. Add this to your monthly borrowed amount repayable ($12,000/12 months), and you’ll be left with the amount of approximately $1020 to be repaid monthly.

In total, you’ll have to repay $12,240 for the entire loan.

Reducing balance personal loan interest rates

Typically, when you repay a loan, the amount that you repay at whatever frequency is called an Equated Monthly Instalment (EMI). This is a fixed amount that you repay each time, and it comprises part of the principal amount you borrowed through the loan, plus the interest on your loan.

When it comes to reducing balance personal loan interest rates, interest rate calculations are based on the outstanding principal loan amount, not the original principal loan amount.

Say, for example, that you’ve just paid the first EMI for your loan. The amount that you’ve just paid is “cleared”, and the interest you have to pay next month will only be based on the balance principal loan amount you have remaining to pay.

Let’s take a look at how this might look for a loan of $12,000 with a 2% interest rate, to be repaid over 12 months.

Observe how the interest amount reduces as the loan is repaid, with the 2% interest rate being computed based on the balance principal amount to be paid. In such a scenario, a reducing balance personal loan rate has clear benefits.

Finding the right personal loan can make a world of difference for you in the long run.

All else equal, when it comes to reducing balance personal loan interest rates, you’ll pay less interest per repayment as you pay more EMIs, hence the total interest on your loan will be less compared to a loan that’s based on flat rate personal interest rates.

What is the allowable licensed money lender interest rate in Singapore?

The legally allowable licensed money lender interest rate in Singapore is up to 4% monthly. Private money lending rates can be charged according to the lender’s wishes, up to a maximum of 4% monthly, across many types of personal loans.

Just so you know, the 4% monthly cap applies to both secured and unsecured loans, no matter the borrower’s income.

What is the allowable licensed money lender late interest rate?

Curious what’s the late interest rate that applies if you repay your instalment late? By law, the allowable licensed money lender late interest rate is also limited to 4% monthly.

Private lenders can only impose the late interest rate on the overdue amount when a borrower is behind in his or her loan repayment schedule.

What factors can influence your money lender interest rates from private lenders?

Every licensed money lender’s baseline interest rate that they’re willing to offer is different. Money lender interest rates in Singapore can be influenced by factors such as your credit history, existing loan obligations, income level, loan tenure, loan sum, whether the loan is secured by collateral or not, and whether you’re a repeat customer with the lender or not.

Other private lender fees and charges that may apply

Legal fees as ordered by the court

If and when a registered private lender succeeds in claiming the costs in relevance to loan recovery with the court, the lender has the right to impose the court-ordered legal fees on the tardy borrower who has failed to stay on track with his or her repayment schedule.

Loan processing fee and late repayment penalty fee

Apart from licensed money lender interest rate and late interest rate, registered private lenders are able to impose a loan processing fee (i.e. loan administrative fee) of up to 10% of the loan principal.

Take note that this can and should only be imposed when the loan is confirmed and granted. For the most part, most lenders will deduct this fee right before loan disbursement, so don’t be alarmed if the amount you receive is less than your loan principal!

Registered private lenders also have the right to charge a late repayment penalty fee of not more than $60 in the event of late repayment for the month.

Important note on private lender fees and charges

Be aware that there is a cap on the total charges that a private lender can impose on any loan.

Including the loan processing charges, interest charges, late interest charges, and every late repayment penalty incurred, the total sum should not go beyond the loan principal, regardless of how long a borrower skips his repayments!

Current private lender interest rates and bank interest rates

At the time of writing this article, banks in Singapore offer interest rates on personal loans from as low as 1.90% to 5.42% per annum. These are the advertised interest rates that have yet to account for loan processing or administrative charges.

With that being said, if you’re looking for a personal loan from a registered money lender, you can expect the private lender’s interest rates to vary between 1% and 4% monthly.

While this is higher than what many banks can offer to borrowers, not everybody can qualify for loans from banks.

For starters, banks are incredibly strict and have tough criteria to meet. From the need to have a solid credit score to minimum income requirements, these are things that not everyone in need of a quick loan can satisfy right there and then.

What to look out for other than your private money lending rates

#1 Is the early repayment fee reasonable?

Early repayment fees are when you repay a loan earlier, perhaps in hopes of avoiding interest charges. However, if your loan has a lock-in period where you’ve agreed to pay a fixed amount every month for a certain period of time, you may be charged an early repayment fee.

Calculate if your early repayment will save you money. If it does, then the amount might be reasonable. With that said, if the amount is unreasonable, and you have a lump sum of cash that you’d like to put towards repaying the loan before you plan for other expenses, you might still consider repaying early in a bid to get out of debt faster.

Just to share, licensed lenders do not charge early repayment fees, as opposed to major banks and financial institutions in Singapore.

#2 How dependable is the lender?

Even if you seek the lowest licensed money lender interest rate you can get your hands on, you should always make sure that your loan provider is properly licensed. Make sure your lender is one of the officially registered lenders in Singapore.

Apart from legalities, there are many advantages of borrowing money from authorised lenders, such as protection from harassment and unfair practices, limits on interest rates and fees chargeable, easy loan accessibility, speedy loan disbursement, etc.

While you’re at it, do your research on the money lender(s) you’re engaging with. Gather opinions from friends and family who have borrowed in the past, and check out money lenders’ reviews online to start.

#3 How soon can you get the funds?

Legal lenders in Singapore are known for their extremely speedy turnaround times.

If all required documents are in place and you’re able to visit the money lender’s office during their business hours, you may very well be able to get your loan approved and the funds disbursed in less than an hour.

The same cannot be said if you were to try to get a loan from a bank or financial institution.

#4 Are you eligible for the loan?

Banks have tough criteria and requirements that not everybody can meet, no matter how much they’d like to obtain a loan with relatively lower interest rates.

On the flip side, licensed lenders are a legal alternative that people can definitely consider if they’re in search of a loan to tide them over an emergency or two.

In fact, licensed lenders’ loans are highly accessible (including foreigner loans) — even people with poor credit history and lower annual income can qualify for these loans with reasonable private money lender interest rates.

Conclusion: How to easily compare licensed money lender interest rates?

It is always a good idea to compare Singapore’s licensed money lender interest rates, for there are so many different lenders operating in the industry right now.

As it stands, a private money lender’s interest rates can vary from lender to lender. It is only through comparison and due diligence that you’ll be able to find the best lender for your needs and circumstances.

While this may sound challenging, it definitely isn’t if you know where to look. Enter CompareSing, a loan comparison company that helps you gather loan quotes from the best money lenders in Singapore.

The cherry on top? Our services are completely free of charge, and it’s super easy to get started — all you have to do is submit your details, sit back and wait for loan quotes to be sent to you.