Imagine this. You are in a tight spot because you don’t have the cash on hand to pay back your loan from a licensed money lender.
You could use a personal loan, but they’ll want collateral—you’ll have to put up your home or car title as a guarantee that you’ll repay the debt.
What do you do if you can’t afford to put up these valuable assets for one reason or another? In this article, we’ll explain what options are available to you when you can’t settle your loan with a licensed money lender.
What Licensed Money Lenders Are
Licensed money lenders are approved to provide borrowers with instant loans. In Singapore, they are regulated by the Ministry of Law.
They offer loans to citizens, permanent residents, and foreigners with valid employment passes.
Licensed money lenders are the best alternative if you are looking for a quick loan and a less stringent application process.
But it’s important to confirm whether your preferred money lender is in the Registry of Moneylenders’ list of licensed money lenders.
What Types of Loans Can You Borrow from A Licensed Money Lender?
Licensed money lenders offer secured or unsecured loans.
A secured loan is backed by collateral such as a house, car, jewellery, or any other kind of asset. On the other hand, unsecured loans are not backed by any collateral; the lender considers your income.
Secured loans have no limit, unlike unsecured loans, which are capped depending on how much you earn. You can borrow as much as the lender is willing to offer and if you have the collateral on hand.
When you opt for a secured loan, the lender applies a caveat to the collateral in the event you fail to pay the debt.
Licensed money lenders offer different types of unsecured loans. These include:
- Personal loans
- Business loans
- Renovation loans
- Loans to pay medical debts
- Wedding loans
- Debt consolidation loans
It is important to remember that the amount you can get from licensed lenders in Singapore depends on your income.
With a yearly income of $10,000 or below, you are eligible for a loan of up to $3,000 if you are a Singaporean. If you earn more than $20,000 per year, you can access loans of up to six times of your monthly salary.
Before you make any plans, check your eligibility and how much you can get from your preferred lender.
Advantages Of Borrowing Money From Licensed Lenders
Here are some pros of borrowing money from licensed lenders.
Most licensed money lenders will disburse the money you need instantly once you sign the loan contract, and after they carry out the physical verification. In some cases, you can get the loan within 30 minutes.
Easy And Fast Application Process
You can apply for a loan by visiting your preferred lender’s office or through its website. The application process is straightforward.
Most licensed lenders make it easy to apply for their loans and don’t require tons of documents to be approved.
Terms And Conditions Are Explained Clearly
Licensed lenders are mandated by the law to ensure you understand all the terms and conditions before signing for the loan.
Get Loans Based On Your Income
Licensed money lenders will lend you the money you need based on your income. This prevents borrowers from overburdening themselves with debt.
Disadvantages Of Borrowing From Licensed Lenders
Below are some of the main disadvantages of getting a loan from licensed lenders.
Higher Interest Rates
Licensed lenders are allowed to charge an interest rate of up to 4% per month. This translates to more than 40% per year. Banks and other major financial institutions charge at least 15% to 20% per annum.
Shorter Repayment Period
Loans from licensed lenders usually have a tenure of one to three months. This means the repayment amount is likely to be higher as compared to those loans with longer tenure.
Penalties And Fees On Late Payment
If you default on your loan, the lender is allowed to charge you 4% on outstanding amounts. They may charge you $60 for every month you default, plus legal fees incurred when recovering their debt.
It Affects Your Credit Score If You Default
If you fail to pay your loan on time, this will affect your credit score. Although most licensed lenders don’t do a hard credit check, they are not likely to lend to someone with a bad credit history.
Amount You Borrow Depends On Your Income
The amount you can access from licensed lenders depends on your income. If you have a big project you would like to accomplish but your income is low, you will not have access to the capital you need.
Risk Of Becoming Reliant On Debt
It’s easy to get money from a licensed lender. The process is quick, and you get the money instantly after verification.
If you are constantly struggling with your finances, you may get used to relying on debt to sort out your financial crisis instead of developing the discipline you need to pay off your debts gradually.
How Are You Protected By The Law When Borrowing From A Licensed Money Lender?
According to the Moneylender Act and Rules, the borrower is protected from rogue lenders. The Act protects the borrower in the following ways:
Licensed Lenders Must Explain The Terms And Conditions Of The Loan Contract
A licensed money lender must explain the loan’s terms and conditions to a borrower before offering the money.
The lender must ensure the borrower understands how the interest will be calculated, the loan tenure, and the repayment date.
Interest Is Capped At 4%
The lender is not allowed to charge more than 4% interest per month and not more than 10% on other costs.
In the event the borrower defaults, the lender should charge 4% for outstanding amounts. Late fees should not be more than $60.
No Advertising Is Allowed
A licensed money lender is not allowed to bombard a borrower with text messages or emails about the loans it offers. Instead, the lender can only advertise in consumer directories, on its website, or its office premises.
The Lender Should Not Harass Or Intimidate The Borrower
It is against the law for the lender to shame, intimidate, or harass the lender during the recovery of their money.
Maximum Amount Of Money The Lender Can Offer A Borrower
The amount a licensed money lender can offer a borrower depends on their income.
If the borrower’s yearly income is below $10,000, the maximum the lender can offer is $3,000. This prevents the borrower from overburdening themselves with debt.
What If You Can’t Settle The Loan With A Licensed Money Lender?
If you are unable to pay your debt, you must consult your lender about your options. Here is what you can do.
Speak To The Lender And Seek An Extension
Doing so will help you reorganise your finances and settle the debt with the money lender. If you feel the extension is not enough, speak to the lender and restructure the debt.
Restructuring the debt allows you to pay your loan in smaller installments over a longer period.
Consider debt consolidation if you have other debts. This will make it easier to pay off one debt instead of keeping up with the many payment schedules.
Apply For A Debt Repayment Scheme
The debt repayment scheme is administered by the government to help consolidate your debts into one.
You are given up to five years to repay the debts. The monthly repayment amount depends on how much you earn.
You will need to confirm whether you are eligible to join the scheme.
Go For Credit Counselling
A credit counselling session can help you learn more about debt management. Credit counselling trains borrowers on debt and can help you with debt consolidation.
File For Bankruptcy
If you owe more than $15,000 and you are unable to pay, you can apply for bankruptcy.
When you apply for bankruptcy, the loan will stop accumulating interest. The lender will not sue for the debt. It’s not the best option, but it will help you rebuild your finances all over.
But it will affect your credit score adversely.
What Happens If You Default On The Loan?
Defaulting on a loan will ruin your credit score, making it harder to get loans in the future.
Since you signed a loan contract with the lender, they can send debt collectors or sue you to recover their money. If the loan is secured, then you may lose your collateral.
So make sure you are able to pay the loan as agreed with the lender.
How Credit Counselling Singapore Can Help
Credit Counselling Singapore (CCS) provides borrowers with financial guidance and debt management support.
The non-governmental organisation seeks to help borrowers understand their financial position and choose the right option.
A CSS counsellor will work with you to help you restructure your loan repayments.
You can address your debt problem through counselling and by facilitating repayment of your debts. This gives you the flexibility to pay off the debt over a longer period.
Other Ways to Get Help
Here are other ways to help you settle your loan.
- If you are unable to pay, you can request your family and friends for an interest-free loan to settle the debt. In so doing, you will ensure the loan interest doesn’t pile up.
- Sell property or assets to settle the outstanding loans.
If you find yourself in a situation where you can’t settle your loan with a licensed money lender, the best thing to do is to contact them as soon as possible.
Explain your financial situation and work out a payment plan that’s feasible for both of you.
Remember, it’s in their best interests to work with you so that you can repay your loan, so don’t be afraid to reach out and ask for help.
Lending Bee offers loan packages to suit all income groups at the best interest rates. Our long repayment periods will give you time to organise your finances.
Regardless of your situation, we will ensure you achieve your financial goals and dreams.