There is no denying that many of us need loans at one point or the other in our lives. However, the trouble comes in selecting which loans to take and from which provider. However, of much more importance is the rate at which you will have to pay back the loan, and the loan repayment period and options. In this light, we have done the research and we present to you a guide to loans in Singapore.
For most Singaporeans, a bank is the ideal institution to get a loan, but do you know that there are also other institutions that you to get loans? The requirements will be different, and with a guide to loans in Singapore, you will know how to pick the loans that best suit your needs.
Bank Loans Vs. Private Loans
The most popular loans in Singapore are issued by banks that are accredited by the Monetary Authority of Singapore. Private loans on the other hands are issued by licensed money lenders who are licensed by the Ministry of Law.
For a bank loan in Singapore, it is common operating procedure for banks to do a credit background check and this puts people with bad credit at a disadvantage. This is one of the reasons why private loans have become so popular. The major difference between a bank loan and a private loan is in the interest charged. Banks charge a lower rate but they are only applicable for 2 to 3 years, after which they are bound to change. However, private loans have a fixed rate that is higher than that of a bank loan and it will mean that they are cheaper if you commit to the loan requirements.
Another difference is in the amount you can borrow. Private lending institutions generally give a higher loan amount than banks and this is one of the reasons why many Singaporeans prefer them to banks. Banks loans also have a no repayment penalty currently set at about 1.5%, but private loans do not have these penalty.
What Are Private Loans?
Private loans in Singapore are loans offered by institutions other than the bank. They include lenders such as pawnshops, licensed moneylenders as well as unlicensed money lender who are otherwise known as “loan sharks”. In most cases, private loans and bank loans differ in the fact that private loan lenders do not give much precedence to whether you have bad credit or no credit history for that matter.
Who Are Private Loans Suitable For?
Anyone in Singapore can get a private loan as long as they have the proper documents. However, unlike banks that have a long and tedious process of approving loans, private money lenders do not require as many documents and thus they can expedite the process. With that said, seeing that the cost of living is increasing every day, everyone can get a private loan without all the hassle that accompanies bank loans.
While many lenders will need collateral items such as land or cars titles, electronics, a proof of income, and more. Our bulk loans are unsecured and this means that you do not have to come with collateral to get a private loan from us.
The Advantages of Private Loans
Do you still want to take out a private loan? These are the advantages of getting a private loan in Singapore:
The Application Process Is Simpler and Faster Than Getting Bank Loans
If you have ever taken a bank loan, then you know all the hassle it takes for it before you know whether you have been approved or rejected. There is too much paperwork that has to be reviewed by several people before it gets approved. This can be frustrating especially if you need money in a short period and this is where private loans become more attractive.
The process of applying and getting qualified for a private loan is much easier and faster. Some private moneylenders can process your loan between two hours and a day.
Fixed Interest Rates
Private loans have fixed interest rates, unlike banks that charge variable rates that are bound to change in the next two or three years. With that said, you can always negotiate the fixed interest rate, and this makes it one of the advantages of taking out private loans.
Licenced money lenders in Singapore unlike banks, do not have an early termination fee if you clear the loan before the specified period. Banks on the other hand, will charge an early termination fee, and this makes them expensive and unfavourable.
Higher Loan Limits
If you choose to go for the legal and licensed moneylenders in Singapore, you can be able to get up to 6 times your monthly income as stated in the rules and regulations governing the private loan lenders. However, you will be required to show a proof of income to be eligible.
The Importance of Taking Private Loans from Legal and Licensed Money Lenders in Singapore
You have probably heard of stories about how people have been harassed by loan sharks in Singapore for failing to pay the money on time and as agreed. No matter how fast you need the money, the better option is to settle for a licensed and legal moneylender.
It will not only save you a lot of trouble, but you will also have the peace of mind knowing that you are protected by the law. Here are that benefits of associating licensed and legal money lenders in Singapore.
Legal and licensed moneylenders follow a strict code of conduct as stipulated by the Registrar of Moneylenders in Singapore that ensures that they follow the proper means of debt collection in case you fall behind on your payments. With that said, these money lenders have been known to offer advice on how to manage your income and stick to the repayment schedule.
Reasonable Interest Rates
The Registrar of Moneylenders in Singapore has clearly stipulated laws regarding how much interest moneylenders can charge for the loan, as well as the maximum loan amount. On the other hand, loan sharks charge high-interest rates that are a way for them to ensure that you repay back the loan.
Get the Money You Want
Licensed money lenders give loans with respect to a set income group. For example, if you have an annual income of over SGD 30,000, then you can get a loan of up to 6 times the amount. The interest rate will also be friendly at 4% at most.
Safeguard Your Personal Details
Loan sharks will always try to get as much information from you to ensure that they have enough materials to intimidate you with or for future marketing purposes. They usually use your SingPass login details and you never know what conniving motive they will think up to get to you. However, licensed moneylenders will only access you SingPass account in your presence when you are in the process of obtaining a loan from them for the purposes of verifying your income.
Avoid Advertising Spams
The Registrar of Moneylenders in Singapore has prohibited all lenders from sending text messages to advertise their services or even via telemarketing platforms. However, unlicensed moneylenders will go against this rule and in so doing, they have lured many people into their lair and they end up harassing them when they fail to pay up on time.
How Do You Know If You Know A Money Lender Is Legal And Reliable?
Since bank loans have made the process of taking out a loan long and tedious, an alternative is to get a private loan from other moneylenders. That being said, the line between the licensed and the unlicensed can easily become blurred. The below tips will help you to determine the legality and reliability of a moneylender.
The moneylender has the responsibility to share all the terms and conditions of the loans in a language that you can understand. Besides, the law requires them to engage you and ensure that you understand all the requirements before you take out a loan. The personnel handling your loan application should also answer all your questions.
The moneylender should outline and discuss with you the interest rate, the payment method options, and the repayment period. If you feel like your money lender is dodging your questions or deliberately leaving information out, then you need to go searching elsewhere.
Your Income Determines the Loaned Amount
The Registrar of Moneylenders in Singapore in 2018 revised how much money should be lent out with regard to the borrower’s annual income. You can read more on the guideline here. However, you will still come across some lenders who are willing to give you loans that are not in line with the guidelines and it is one of the signs of a loan shark.
Details of the Loan Contract
The law requires that there should be a loan contract prepared by a lawyer, and the concerned parties must append their signatures. Be sure to look out for the following details
- Loan amount
- The interest rate
- Repayment period
- Repayment options
- Late payment penalties
If you find a moneylender willing to send you the money without giving you a contract, then the chances are that you are dealing with a loan shark. Be sure to scrutinize the contracts or better yet get a lawyer to look at it. Some loan sharks have become privy to this requirement and they will prepare long and wordy contracts that are intent on misleading the borrower.
Amount of Interest Rate Charged
Did you know that there is a guideline that specifies how much interest you should pay for your loan? This prevents the legal and licensed moneylenders from dictating the fees and loan interest charged. The Ministry of Law Singapore set out that the lenders cannot charge more than 4% monthly interest on the principal amount.
The quoted interest rate in your loan contract is one of the ways to know if you are dealing with a legitimate and reliable moneylender. Loan sharks, on the other hand, may charge as much as 40% or above in interest for the loan.
The Applicable Fees
Licensed moneylenders are required to only charge three types of fees in addition to the interest rate charged. They include
- Upfront service fee
- Late payment fee
- Legal fee
The lenders are not allowed to charge over $60 per month for late payment fee, and it accumulates on a monthly basis. The upfront fee should not exceed 10% of the loan’s actual value. On the other hand, should there be a dispute between the lender and the borrower that is settled in court, the borrower has to cater to all the legal fees, including that of the lender.
If you find a moneylender asking for extra fees, then this is a clear sign that you are dealing with a loan shark. However, if a licensed moneylender exceeds the fee limits as stipulated by the law, then they are liable to prosecution.
Find Your Lender from the Ministry Of Law Website
If you are still in doubt as to whether your moneylender is legally licensed, then you can get confirmation from the list of licenced moneylenders from the official Ministry Of Law in Singapore website. Once you have checked the boxes to the tips above, visit the website or their offices to ensure that they are recognized by the government. The ministry updates the register whenever they license a new moneylender and you should not settle for stories from lenders as to why they are not on the list.
Types of Private Loans (Common Terms)
There are different types of loans available in Singapore. In this section, we look at the common terms that you will hear either from banks or moneylenders.
Long Term Loans
This is a loan whose repayment period is longer than one year. It is best suited to businesses and individuals who want to purchase assets, equipment, inventory and so much more. Depending on the lender, you can get a fixed or variable interest rate and repayment period.
Short Term Loans
This is a loan whose repayment method is less than a year long. It has been found to work especially for businesses and individuals who do not qualify for a line of credit.
This is one of the most popular loans in Singapore despite having a lower value compared to other types of loans. Borrowers can actually get up to six times their annual income. A personal loan has a fixed interest, similar monthly payments, and early repayment options.
Instant Cash Loan
These are loans that are given as soon as a borrower applies for them. An instant cash loan is taken against the borrower’s salary until they can get the next pay cheque. It is ideal for people who find themselves in financial emergencies.
However, they have a high interest rate, but despite this, a borrower can get as much as 4 months’ worth of salary in an instant. You only need to show a proof of income since your credit score is irrelevant.
This loan is sometimes called a personal loan or a long-term in the contemporary sense. It can either be secured or unsecured, but borrowers need to be certain that they will be able to make the weekly instalments associated with the loan. Lenders do not consider a borrower’s credit report but you must have a loan guarantor.
These are loans issued to businesses by banks or lenders and they have a defined repayment date and interest rate. Moneylenders have shorter processing times than banks and they have varied loan repayment options.
Line of Credit
This is money that a borrower can get on demand. A line of credit is offered by banks or moneylenders, and qualified borrowers can draw it up to the maximum for a defined period of time. However, the interest is applicable for what you borrow, and not the entire amount provided in the line of credit.
Monthly Loan / Monthly Instalment Loan
This loan is also known as an Equated Monthly Instalment (EMI). For this loan, a borrower makes a fixed amount of money to a lender at a specified date every month. The period can be set anywhere between 2 months and can go up to several years.
These are loans that when taken out are expected to be repaid back within 30 days or when you are next paid. Despite having high fixed interest rates, it is easy to qualify for a payday loan and this makes them very popular in Singapore.
This is a loan only applicable to foreigners in Singapore with a valid employment pass or work permit that are offered with at a low-interest rate. You should be ready to give collateral since some lenders need a form of security. However, the loan is not subject to a credit background check, and lenders do not require as many documents for approval.
This is an unsecured personal loan that borrowers take out to purposely pay for a wedding ceremony and reception. The best wedding loans in Singapore ought to have a fixed interest rate, a short repayment period. Banks will hardly have such a service, and this makes moneylenders the best option for wedding loans.
This is a loan where instead of getting the money from a bank, you get it from another business or person. The purpose of a private mortgage is to borrow for building or building a home.
Things to Take Note Of Before Applying For a Loan
Now that we have covered all that there is to loans and lenders in Singapore, let us look at what you need to apply for a loan. The process can be complicated and the following tips will guide you in making the best decision.
This is one of the crucial things to take note of before applying for a loan. There are actually two types of interest rates; nominal rate, and the effective interest rate. The nominal interest rate is usually lower than the effective rate. The reason for this is that the effective interest rate (EIR) takes into account the different compounding periods and the fees.
Annual Flat Rate
This is the figure you use to calculate how much instalment you have to pay back each month. Ignoring this fact could leave you with a loan that is too expensive to service.
Fees and Charges
There are lenders who will often say that their loans have 0% fees, but in actual sense, you pay the fees in various other avenues. Mostly, the charges are made through what is known as the processing fee which is roughly 2% or 3% of the principal amount.
Other fees to take into consideration include the early redemption fee, late payment fee, change of tenor fee, cancellation fee. You need to take these fees into account before you decide to accept the loan.
This is important if you are going to borrow from a bank. Moneylenders will also look as to whether you have a bad credit history, or you have a frequent habit of paying your bills late. They will put this into account when calculating the loan amount and the repayment options. You can know your credit rating by checking your status with any of the credit reference bureaus in the country.
The Purpose of the Loan
Banks and other lenders have gone to great lengths to structure their loans to suit different financial purposes. The rates are often more competitive than personal loans and you will not always get a lump sum of cash to use as you desire. For instance, it would be unwise to take a study loan to buy a car or make renovations in your home.
This is also referred to as the minimum tenure, and most lenders require it to be at least 12 months. This is to ensure that the loan earns interest of which they depend upon. Even when you pay off the loan early, you will incur a pre-payment charge.
There you have it, a guide to the loans in Singapore. There are more loans to consider in Singapore, but of great importance is in knowing whether your lender is legally licensed and reliable. If you have any questions about loans in Singapore or are looking for a reliable money lender in Singapore, you can always leave a comment in the section below.