Whether it’s paying for a big ticket purchase or for emergency expenses, most people immediately turn to banks for financial assistance. Unfortunately, it doesn’t always work out. Thankfully, Singaporeans and foreigners living in Singapore can take out a loan from licensed money lenders. But how are money lenders different from banks?
Banking is a business that involves receiving and processing deposits and withdrawals. Banks are also proficient at investments and other services. They also offer loans against securities or collateral so clients can borrow larger amounts compared to other financial institutions.
Licensed money lenders, on the other hand, are exclusively in the business of money lending. They do not accept deposits and generally offer restricted smaller loan amounts based on the borrower’s income. These legal lenders are a good option for those who need short-term financial assistance.
Getting a Personal Loan From Banks vs Licensed Moneylenders
When you’re suddenly facing a financial crisis, who do you turn to?
A licensed money lender typically lends their own money, so they are restricted to smaller loan amounts. Banks, however, receive and process deposits from their customers and withdrawals are controlled. These financial institutions use the accrued funds to provide loans to borrowers against securities and collateral.
Take a look at the key differences between taking a personal loan from a bank vs a licensed money lender in Singapore:
|Loan Amount||Up to 10 times your monthly income||Up to 6 times your monthly income|
|Interest Rate||Between 3.5% and 11% per annum||Up to 4% per month|
|Loan Tenure||Up to 5 years or longer; depending on the type of loan||Shorter; typically up to 12 months|
|Charges and Fees||Between 6.5% and 20% per annum||Upfront fee not exceeding 10% of the principal amount|
|Credit Score||Strict; You need to have a good credit rating to be approved||Flexible; licensed lenders will put more weight on your income level|
|Processing Speed||Longer; usually up to 2 weeks||Fast; usually within the day|
Licensed money lenders are registered and regulated under the Ministry of Law. They abide by the rules stipulated in the Moneylenders Act to protect both the money lender and the borrower. That said, legal lenders are restricted to how much they can lend as well as the charges they can charge.
That said, licensed money lenders can offer unsecured loans of up to 6 times your monthly income if you’re earning at least S$20,000 yearly.
Banks, on the other hand, can provide up to 10 times your monthly income. However, how much you can actually borrow will depend on the bank’s assessment of your income level, credit history, and credit score.
All licensed money lenders in Singapore can charge up to 4% per month. This limit applies regardless of your income, tenure, or whether it is a secured or unsecured loan.
Note: If the lender charges more than the stipulated cap, you may be dealing with a loan shark. Loan sharks are notorious for charging sky-high interest rates and for their harassment tactics. Make sure that you are only dealing with a licensed moneylender.
Banks, on the other hand, can charge varying rates which can be higher or lower than licensed money lenders. Average personal loan interest rates vary between 3.5% and 11% per annum.
Personal loans from licensed money lenders have a shorter repayment period compared to banks. Typically, you have up to 12 months to repay the loan. Alternatively, banks can provide you between 1 to 5 years to repay the loan.
Charges and Fees
Different banks will charge different fees. For instance, the processing fee may vary between 6.5% and 20% per annum. On the other hand, licensed money lenders are only permitted to impose the following charges:
- An administrative fee of not more than 10% of the principal loan amount
- A late repayment fee of not more than S$60 for every month the loan is repaid late
- A late interest rate of 4% for every month the loan is repaid late
- Legal fees
In Singapore, banks usually extend personal loans to Singaporeans and Permanent Residents with an annual income of S$30,000. If you’re a foreigner, you’ll be subjected to a higher income requirement of S$45,000 and above.
If you fail to meet the minimum income requirements, there’s a high chance of your loan application getting rejected. On top of that, banks will also look into your credit history and credit score.
Banks will request a credit report from Credit Bureau Singapore (CBS). If you have a history of late repayment or defaulting on a loan, you will have a bad score. Banks will consider you a high-risk borrower, making it impossible for you to get a bank loan.
Licensed money lenders, however, are more flexible and forgiving when it comes to credit history. They will take into consideration your current income when deciding whether to approve your loan application.
With all the regulations and thorough evaluation, banks can take a while to approve your loan. Typically, the approval process may take around 2 weeks to a month which may not be beneficial for those who urgently need cash.
Compared to banks, licensed money lenders can approve loan applications faster, usually within 30 minutes, and disburse cash within the day as soon as you sign the contract. They require fewer documents and have a less stringent evaluation process since they issue smaller loans.
How To Apply
While you can send an online application to both banks and licensed money lenders, each has different criteria and requirements. For instance, they require extensive documents which may vary from bank to bank.
Licensed money lenders require minimal documents. The most basic documents you’ll need include your NRIC Card, proof of residence, proof of employment, and proof of income.
- Age: At least 21 years old
- Minimum Income:
- Singaporean or Permanent Resident: S$20,000 (depends on the bank)
- Foreigner: S$45,000 (depends on the bank)
Basic Required Documents (May vary per bank)
- A copy of your NRIC (front and back)
- CPF Contribution History Statement (latest 9 months); or
- Latest 1 year Income Tax Notice of Assessment (NOA); or
- Latest computerized payslip
Licensed Money Lenders
- Age: at least 18 years old and above
- Minimum monthly salary:
- Singaporean or Permanent Resident: S$1,500
- Foreigner: S$2,000
- Copy of your NRIC card
- Proof of residence such as a utility bill or tenancy agreement
- Proof of employment such as 3 months’ worth of recent payslip, certificate of employment
- SingPass (to log into CPF, HDB, IRAS website)
Note that foreigners may need to provide a copy of their passport and a valid Employment Pass.
If you find yourself in need of immediate cash for emergency expenses, taking out a personal loan from a licensed money lender is a good alternative. First, they have lenient eligibility criteria and requirements. Secondly, the application is quick and hassle-free.
- Choose a traditional bank personal loan if you need a larger loan amount and longer loan repayment.
- Choose a licensed moneylender if you are in need of urgent short-term financing.
- Licensed moneylenders can approve and disburse loans within 30 minutes
- You can borrow up to 10x your monthly income with a traditional bank while only up to 6x your monthly income with a licensed lender.
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