Borrowing money in Singapore from a money lender can offer speed and convenience, but also comes with its share of risks.

While loan sharks and legitimate money lenders in Singapore provide financial help to borrowers, their business models are drastically different. 

Loan sharks think nothing of resorting to extreme methods to recover their money, so avoid them at all costs. 

In this article, let’s examine how licensed money lenders operate while examining the question: What is the risk of loaning from a licensed money lender? 

What To Consider Before Taking Up A Loan

Everyone knows the importance of comparing interest rates among lenders when looking for a personal loan. 

Besides that, what else should you be on the lookout for from a legal money lender in Singapore?

Interest rate

You will inevitably run into the words Applied Rate (AR) and Effective Interest Rate (EIR) while shopping around for the best interest rates from lenders.

With AR, the loan principal remains unchanged over the life of the loan. You repay the principal in full once you make each payment.

If you make payments on schedule, EIR accurately reflects the cost of borrowing. It considers the offsetting principal payment over the life of the loan. When comparing EIR, keep the loan amount and term constant.


Personal loan applicants should look beyond the licensed money lender interest rate alone. The following are just some of the additional fees that may apply. 

Annual fees: Some lenders demand a fixed amount besides the interest you must pay each year.

Fees for late payments: If you’re unable to pay a money lender Singapore by the due date or need to pay less than the agreed-upon amount, you get charged a fee. 

Pay close attention to this because lenders might be harsh about late money loan payments in Singapore.

Change in tenure charge: While not all lenders provide you the option to prolong the payback period for an extra fee, having this flexibility would be handy.

Loan Limit

When determining your borrowing limit, lenders look at several variables, including your credit history and, more significantly, your regular monthly income.

Let us explain how it works. Individuals who meet the income threshold may be eligible to borrow up to six times their monthly income. However, there is typically a maximum amount involved.

However, what if you need a bigger loan? Getting a loan that is eight or 10 times your monthly salary is possible from some lenders. But they often reserve this sort of thing for those with higher incomes.

Disbursement Of The Money

The speed of disbursement is crucial to many potential borrowers. 

To find out when you can expect the money, research this beforehand because it differs from lender to lender. 

Applying when you have all the paperwork is handy because it will speed up the application process.

With a Lending Bee loan, we can disburse money within 24 hours of loan approval.

Effect On Your Credit Score 

Borrowing can affect your credit score. 

If you borrow a manageable sum and make your payments on time, this can help your credit score, but this also depends on many other aspects. 

Occasionally, you can pay a small fee to view your credit bureau report. 

Fees That Licensed Money Lenders Can Charge

Singapore restricts licensed money lenders to a monthly interest rate of only 4%, which applies for both unsecured and secured loans. 

Say you borrowed $1,000 and have paid back $400 of it. You can calculate interest only on the remaining $600.

All late interest charges cap at 4% per month and can only apply to the amount paid late.

If you borrow $1,000 and are late making the first repayment of $200, the lender will only charge you the late repayment fee on the first $200. The reason is that the rest of the loan is not yet due.

Fees and interest rates charged by licensed money lenders are:

  • Penalties of up to $60 per month for late payments
  • Fees are not to exceed 10% of the loan principal
  • Court-ordered legal fees for a licensed money lender’s successful loan recovery claim

In addition, a licensed money lender can’t charge more than the original loan amount in fees (including interest, late interest, upfront administration fee, and late fees).

If you borrow $1,000 and pay it back with interest, late interest, a 10% administration fee, and a $60 monthly late fee, the total amount you owe cannot exceed $1,000 – the original principal loan amount.

Risks Of Dealing With A Licensed Money Lender

Lending Rates

When it comes to the issue of determining what is the risk of loaning from a licensed money lender, there is one thing to note. 

Since private money lenders have less stringent borrowing requirements, they take on greater risks. This means private money lenders take on more risk than traditional banks. 

Therefore, licensed money lenders demand higher interest rates to compensate. 

For some borrowers, this could reduce their ability to profit from their investments. Since most loans are for such a short period, the borrower must be able to repay rapidly to avoid default.

Terms And Conditions Of A Loan

When taking out a loan, whether from a bank or a Singapore licensed money lender, it’s important to be aware of the terms involved. 

For example, you have to make regular payments every month. If you default, you face severe consequences.

In contrast to conventional loans, private loans typically call for a shorter repayment period (within 24 months) and an interest-only loan. 

Although many might benefit from short-term borrowing, it’s stressful. This means you must know how to settle the money lender when it’s due. 

Large Downpayment

Licensed money lenders may turn loan applicants down if they cannot meet the minimum criteria such as their income and credit score. 

Mostly, hard money lenders can overlook certain criteria, but only if there is enough collateral to back the loan.

How To Tell If A Money Lender Is Licensed 

At some point, most of us may have had to borrow money.

In these circumstances, we frequently turn to money lenders as a more practical option than taking out a loan from the bank.

After all, when you need an urgent loan, a licensed money lender can be a lifesaver. 

Unfortunately, criminals such as loan sharks who pose as legal money lenders has emerged quickly in Singapore in recent years.

For this reason, if you’re looking for credit, you need to understand how to distinguish between a licensed money lender and a loan shark. The following tips will help you.

  1. The Lender Explains Your Loan Terms

According to Singaporean legislation, licensed money lenders must give you an easy-to-understand explanation of the loan’s terms. 

This includes responding to any inquiries you may have regarding your loan. Also, outlining the payment methods, interest rate, and repayment time.

Run if you come across a money lender who hands you a contract but won’t break it down for you in simple terms.

  1. The Lender Requires You To Sign A Contract

There is a legal requirement for licensed money lenders to have their clients sign a contract in person, during which a verification of your identity will be conducted. 

The contract must contain information such as: 

  • Repayment timeline
  • Late payment fees
  • Interest rate

Do not accept a loan offer from a lender that does not offer a loan contract.

  1. 3. It Does Not Impose Interest Rates Higher Than The Market

Guidelines established by Singapore govern the interest rates that licensed money lenders can charge. 

Since 1 Oct 2015, the Singapore government has capped the maximum monthly interest rate that licensed money lenders can charge at 4%. A legitimate money lender won’t ever charge more than that.

  1. It Is On The List Of Licensed Money Lenders On The Ministry Of Law’s Website

On the Singapore Ministry of Law website, there is a list of licensed money lenders. Check the list to see if the money lender you are in contact with is on the list. If not, it could well be a loan shark.

  1. It Has A Physical Location

Singapore law mandates that licensed money lenders have an office, which must correspond to the address listed on the Ministry of Law website. 

Licensed money lenders will typically require you to visit their physical location for the first meeting and contract signing. 

However, you can continue communicating with them later through phone or email.

What To Do Once Your Loan Has Been Approved

After receiving your loan, the licensed money lender is legally obligated to give you the agreed-upon loan amount. 

The money lender withholds a loan approval fee of up to 10% of the principal amount in advance.

Once you have received the loan money, you are legally obligated to repay the loan according to the loan’s terms.

From the time you receive the loan funds until you repay them, as the borrower, you must:

  • Get a receipt from the money lender after each payment.
  • Keep all records of your financial transactions, including copies of your bank statements and payment receipts.
  • At least twice a year (typically in January and July), the money lender should send out a statement of account for all existing loans, detailing the payments made and the balance due.
  • Collect a backup copy of the loan agreement.

Finding a licensed money lender is important to ensure a positive and rewarding experience when looking for a loan. 

There are reputable money lenders in Singapore, and thanks to government initiatives, all Singaporeans can have a positive experience doing business with them.

Lending Bee is among Singapore’s top regulated money lenders to turn to if you’re in a tough spot and need quick cash. 

We offer personal loans with easy-to-understand terms based on your income level and repayment capacity.

Apply for a loan with us now.

About Ashley Sim

Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.