When your friends or relatives are going through hard times, you feel compelled to help them. The reverse of this story is also true.

But here’s the problem:

Loved ones may count on your relationship too much, which puts you – the lender – at a disadvantage. Because, of course, you want to help those closest to you, but you also want to make sure you’ll recover the personal loan you’ve given them.

Based on previous experiences, there are some who would ask their friends to take a personal loan or a debt consolidation loan from a reliable financial institution. It is not to say that they are heartless, but it is a more composed solution.

You don’t want to risk losing that friendship or kinship.

If you want to direct them to a helpful financial institution, share this link you can with them. Lending Bee will be able to help.

So, start by reading the article below. We’ll explain all the legal intricacies so that you’ll be able to preserve your friendship without damaging your finances.

Personal Loans For Friends And Family: License

MinLaw in Singapore regulates the activity of licensed moneylenders and, as such, doesn’t allow unlicensed moneylenders. However, this prohibition refers to businesses, not the act of lending cash to those you know.

So, a personal loan to your loved ones doesn’t require a license.

Problems only arise if you’re systematically and continuously lending money to various people. But that doesn’t mean your loan is less important.


Personal Loans For Friends And Family: Interest Rate


You may think that only licensed moneylenders are allowed to request interest when they advance personal loans. You’re not alone; many Singaporeans mistakenly believe this too.

Setting an interest is legal if you’re not practising illegal moneylending.

But how did the false assumption start in the first place?

Well, going back to the Moneylenders Act at section 3, you can see this document supposes that people asking interest for personal loans are presumed moneylenders “until the contrary is proved.” And that’s the key.

You can’t be a licensed moneylender if you’re not conducting the business of moneylending, which you’re not as long as you’re only lending money to your loved ones. So, if you’re not a moneylender according to the Moneylenders Act, you don’t need that license to charge interest.

So here’s a new question: How much interest can you charge?

According to the current law in Singapore, licensed moneylenders can only request a 4% interest rate/month maximum. Of course, these personal loan agencies can also set additional charges, including:

  • Maximum 4%/month late interest rate
  • Maximum $60 late repayment fee

We kept mentioning above that you’re not a licensed moneylender, and, as a result, this rule doesn’t apply to you. So you can ask for as much as a 100% interest rate per month – although that wouldn’t be particularly moral in certain circumstances.

That aside, the primary issue to consider is the legality of the matter. From that perspective, avoiding legal complications should be your number-one focus.

For example, you don’t want anyone thinking you’re the loan shark. What can you do to reduce possible conflicts?

Put everything in writing. You need an IOU contract for this – we’ll discuss more details below. But for now, remember you have to specify the expected interest rate in this contract.

If you are feeling uncomfortable with lending, you can recommend them to Lending Bee where we offer affordable loans, disbursed within hours!

We are also one of the six firms selected to pilot alternative business models for money lending. The company also invests greatly in technology, allowing us to secure the FinTech License and integrate Singpass into our loan application.


Personal Loans For Friends And Family: The Written IOU

The first question that many people ask is whether IOUs are legal or not. The answer is yes; IOUs are legal in Singapore. These look like basic contracts you sign with your friend / family member and, unlike promissory notes, have a straightforward structure.


Let’s see how to write an IOU without getting a lawyer. Include:

  • You and your friend’s complete name, ID card, address etc.
  • Payment frequency and date
  • How they’ll repay the personal loan (e.g., bank transactions, cash, cheque)
  • Interest
  • Additional charges

Here’s a sample of an IOU contract by Singapore Legal Advice that you can use:

“I, (name), (NRIC number) of (address), contactable at (contact number) and (email address), acknowledge receipt of the sum of S$_____, being a friendly loan extended to me, at my request, by my friend, (name) (NRIC number) of (address) today, by way of cash/cheque, (bank’s name) cheque no. __ dated __.

I promise to repay this sum in full to him/her by (date of repayment).

Dated this __ day of (month) (year)”

Pro tips:

1. If you’re lending a more massive amount, consider hiring an attorney.

Even if you trust your friend or relative, larger personal loans have a higher risk of default. So if that happens, you need your contract to be rock-solid. A lawyer knows all the legal intricacies, and so they can write a bulletproof agreement that minimises the risk of not getting your money back.

2. Ask someone to witness the IOU signing.

This witness can be paramount if you’re ever facing difficulties with your loan recovery. For example, the borrower can claim undue influence during the trial, and that will cause unnecessary problems for you. Conversely, the witness can attest that the entire arrangement was as straightforward as possible.

However, if you have that third-party witnessing your agreement, remember to include their details in the IOU contract. These details include:

  • Name
  • NRIC number
  • Address
  • Contact information
  • Signature


Personal Loans For Friends And Family: The Collateral

If you’re lending a massive amount to someone, it’s wisest to ask for security. That security can be something they own, such as:

  • Jewellery
  • A car
  • Property

So if your friend / relative goes bankrupt and defaults on their loan, you have an extra guarantee that you’re recovering at least some of the cash you lent them.

However, be sure to include that collateral in the IOU contract. Besides, double-check the laws on securities with a specialised attorney because you may need to register that collateral to tick all the legal boxes.


Personal Loans For Friends And Family: The Guarantor

Guarantors are always a good idea if you’re lending a massive amount of money to someone, mainly if someone’s likely to avoid repaying their loan. We are not saying that your friend is unreliable, but it is a backup plan.

So, approach your friend / relative carefully and see how they’d feel about someone else who would guarantee their loan.

In this case, make sure the third party is there for the IOU contract signing as well. Even better, you could ask a witness to be present for the signing to strengthen the legal card.

If this is a difficult decision, you can consider recommending your friend or family to a financial institution that can help settle all their financial issues.


Personal Loans For Friends And Family: Recovering The Loan

Now let’s say you’ve ended up in the worst-case scenario, which is a loved one who can’t or won’t repay their personal loan. These situations are tricky to navigate because, at first, you’re tempted to give them some slack, especially if you know they’re going through rough times.

But that can be a mistake.

Of course, you don’t want to ruin your relationship, but at the same time, you want to impose strict yet fair rules.


One strategy that works most times is renegotiating your loan conditions. As such, you can:

  • Extend the loan tenure to a more comfortable period so that the installments decrease.
  • Waiver the interest as long as the friend/ family member keeps paying towards the original amount.
  • Freeze payments altogether for a set period.

To avoid legal limbo, include these amends in your contract moving forward.

The real problem is when your friend or acquaintance refuses or can’t pay anything at all. At this point, you should consider a debt collection agency.

This firm will recover the personal loan for you, but:

  • You need that IOU – aka proof of debt.
  • You have to pay an upfront fee to that company and possibly even a percentage of the amount.

Warning: Choose the debt recovery agency carefully because MinLaw doesn’t regulate these companies’ activity. Although debt collectors should still respect the law and avoid violence and blackmail, some agents work with grey areas.


Personal Loans For Friends And Family: Recourse

If you can’t negotiate to recover your debt, you should consider legal recourse. So, your first idea would probably be the Small Claims Tribunal – but unfortunately, this institution doesn’t deal with personal loans.

Unless you have a contract that shows you’ve sold products or services, your best bet is to contact an attorney or a free legal clinic in Singapore.

The steps that your attorney will take are:

  • Send a letter of demand.
  • Start the civil litigation proceedings.
  • If you have a sturdy contract, you can avoid going to trial. Alternatively, your attorney can advise you to go for mediation.

Pro tip: Some factors strengthen your case you ever reach this trial stage. For example, strong proofs include:

  • Witnesses
  • Messages/emails between you and your borrower
  • Bank transactions
  • IOUs

Warning: IOUs have limited periods. If your borrower doesn’t repay the debt and:

  • You have a repayment deadline in your IOU contract: you should start legal proceedings within six years after that deadline.
  • You don’t have a repayment deadline in your IOU contract: you should start legal proceedings within six years from when the cause of action arose. In this case, it’s wise to get legal help to see exactly what that IOU expiry date is.

Think Thoroughly Before Lending Money To Your Friends And Family, For Good Reasons


Lending money to your friends and family can seem like a great idea if you want to help them.

However, you need a sound contract to ensure you’re recovering that debt. So even in the best-case scenario of getting that loan back, your relationship may take a significant hit. Or, you must also be mentally prepared not to get your money back.

That’s why it’s always best to consider a licensed moneylender first.

Lending Bee will support you throughout your contract with low interest, lengthy tenures, and substantial loans. That way, you can preserve your friendship while your friend still gets the help they need. Apply via Singpass here or try our personal loan calculator to view the rates.

About Lending Bee

In a volatile, uncertain, complex and ambiguous world, you can count on one thing – your partner in credit, Lending Bee. Just like an industrious bee, we are committed to helping each and every customer access credit – quickly, easily and seamlessly.