Money lending can be a great way to get quick access to cash, but there are essential things you need to know before you borrow.
The Money Lenders Act in Singapore sets out the rules that licensed money lenders must follow when providing loans. This article will explain these rules and how they protect borrowers.
Keep reading below to understand your rights and responsibilities.
How Much Borrowers Can Get From Money Lenders
Moneylenders rules in Singapore establish different limits depending on the type of loan you need. Here’s a quick summary:
- Singaporeans cannot borrow more than 12 times their maximum monthly income.
- The maximum sum for an unsecured personal loan from a licensed money lender is $250,000. However, you may borrow a more significant sum via a secured personal loan. In this case, you would have to use one of your valuable assets (e.g. property) as collateral.
- Different loans have different maximum caps and tenures. Here are just two examples:
- A renovation loan is capped at $30,000 or six times your maximum income, whichever is lower. The maximum renovation loan tenure is five years in Singapore.
- A car loan is capped at 70% of your car’s open market value (OMV) if the vehicle costs less than $20,000. The maximum loan you can get for cars costing over $20,000 is 60% of that OMV. The maximum car loan tenure in Singapore is seven years.
- The maximum amount you can borrow depends on two essential figures:
- The Total Debt Servicing Ratio (TDSR): This states that your total monthly installments can’t amount to more than 55% of your gross monthly income
- The Mortgage Servicing Ratio (MSR): This stipulates that your total monthly installments for home loans can’t be more than 30% of your gross monthly income
- The maximum loan you can get from a legal money lender in Singapore depends on your income and nationality:
- Up to six times your monthly earnings: Singaporeans, permanent residents (PRs), and foreign citizens residing in Singapore with incomes over $20,000 per year
- Up to $3,000: Singaporeans and PRs with incomes below $20,000 per year; foreigners who earn between $10,000 and $20,000
- $500: Foreigners residing in Singapore with incomes below $10,000 per year
Remember: The limits established by the Money Lending Act Singapore are maximum thresholds, not mandatory sums you are entitled to.
As such, a licensed money lender in Singapore can legally grant lower amounts to their borrowers.
However, no legal money lender in Singapore can lend you more than these amounts.
Prohibited Practices For Money Lenders
The Moneylenders Act outlines a slew of prohibited practices for money lenders.
It’s wise to understand what a licensed money lender isn’t entitled to do because it’s the only way to defend your rights as a borrower.
Operating Without A License
It is illegal for an agency to give out loans to people without a money lending license in Singapore. That license has to be obtained in the state of Singapore and valid.
There are some cases where the Ministry of Law allows a money lender to operate without a license in Singapore.
If you can’t find your agency on either of these links, it is most likely a loan shark.
Advertising Their Loans
Money lenders in Singapore cannot promote their loans in what we regard as usual advertising channels. As such, they cannot give out flyers, buy TV ads, or post Facebook ads.
And they certainly cannot spam you with direct e-mails, letters, or WhatsApp messages.
It is also illegal for a licensed money lender to approach you in the street, trying to present its loan offer.
The only places where the Money Lenders Act allows licensed businesses to advertise are:
- Business and consumer directories
- Their websites
- The physical premises where they conduct their work (e.g. the walls, windows, or doors of the unit its office is located in)
Skipping Due Diligence
You may have noticed that almost all legal money lenders in Singapore have websites allowing you to apply for loans. These websites also give you pre-approval notices.
However, a licensed money lender should conduct due diligence at its headquarters.
That means it should check all of your documents and your identity at its place of business before transferring you the money.
Remember: If a loan officer tries to approve your loan via SMS and transfer you money without this due diligence, the lender is operating illegally.
Skipping The Contract
Any licensed money lender should compose a correct and comprehensive contract containing only legal terms.
It should explain this contract to you so that you understand all its provisions before you sign your name on the dotted line.
And it should give you a copy of this contract.
So, legal money lending in Singapore cannot exist without this agreement.
Remember: If you’re offered a loan without a contract or an incomplete one, you’re probably dealing with a loan shark.
Disclosing Your Personal Information
A legal money lender in Singapore cannot share your personal information with other people or agencies. It cannot sell or use your data or it breaks the law.
However, it can share your information with the designated credit bureau and the Registry of Moneylenders if there’s any legal issue with your loan.
In short, a licensed money lender in Singapore:
- Can share your data with law enforcement agencies for legal reports, or if you have not met your obligations, but
- Cannot share your loan-related data with your loved ones or acquaintances as a means of pressuring, harassment, or shaming
Impose Higher Interest Rates And Fees Than The Legal Ones
The Money Lenders Act establishes clear charges for all moneylending agencies in Singapore. So no loan agent is legally allowed, under any circumstance, to impose higher costs.
These maximum caps for these fees are:
- 4% monthly interest rate, calculated from your remaining balance
- 4% late interest rate, calculated from the installment you are late paying
- $60 late payment fee for each month your payment is late
- 10% admin fee
Note that a legal money lender cannot impose:
- Pre-approval fee
- Processing fee
- Early payment fee
It also cannot suddenly modify the rates and charges in the middle of your loan unless there’s a specific law to raise rates throughout the country.
What A Money Lender Is Permitted To Do
The short answer is that a money lender is permitted to act legally and professionally toward you.
A legal money lender in Singapore is allowed to:
- Lend you less money than the maximum loan caps based on its own investigations of your financial history
- Establish the highest legal fees and rates as outlined above
- Reject your application
- Ask you for additional paperwork
- Seize the assets you used as collateral if you cannot repay your loan
- Contact a debt collection agency to collect the money you owe if you cannot repay your installments or are unwilling to negotiate another payment plan
- Sue you if you cannot meet the obligations stated in the contract
- Call you at your home and tell your family members that the call is with regard to a loan. However, it cannot harass your family members in any way
Rules Regarding The Conduct Of Money Lenders
Legal money lenders in Singapore cannot:
- Harass or threaten you
- Hurt you
- Blackmail you
- Destroy your property
- Seize your property
- Try to withhold your documents (NRIC, passport, etc)
- Inquire about your passwords to credit cards or bank accounts
- Try to get you to blackmail or collect loans from its other customers
Caveats Of Money Lenders To Take Note Of
Money lenders have specific caveats you should know before taking a loan. Although their activity is legal:
- A licensed money lender’s interest rate is high compared to banks. For example, it’s entirely legal for a licensed money lender to establish their rates at 4% per month, whereas a bank may offer the same loan at a 7% effective interest rate (EIR) per year.
- You may get access to higher sums through a bank loan. Banks in Singapore may lend you up to 10 times your monthly earnings, whereas legal money lenders only offer you six times that amount.
- Banks may go with longer tenures, meaning your monthly installments will be lower.
Of course, licensed money lenders are more flexible and offer you quick loans. Even if their interest rates are higher, so are their approval rates.
And a diligent money lender like Lending Bee will always find the right solution for your needs, regardless of your age, income, nationality, or credit score.
What A Money Lender Can Do If You Can’t Pay The Loan
If you have trouble paying your loan, the Money Lenders Act in Singapore allows money lenders to:
- Send you written communication about missing your deadlines
- Call your home phone and inform your family about your inability to repay the loan without making any threats or harassment
- Hire a debt collector agency. Debt collectors are less regulated in Singapore, so they are allowed to disclose your inability to repay this debt to your acquaintances
- Take you to court to retrieve their money
That’s why it’s always best to try and negotiate with your money lender if you can’t repay the loan.
An expert, customer-oriented money lender such as Lending Bee can find convenient solutions even when you see no way out.
Besides, many credit counselling agencies in Singapore can help.
The Money Lenders Act Protects Your Rights
The provisions in the Money Lenders Act may seem like common sense, but in many other countries, money lenders operate without such restrictions.
As a result, they often prey on the most vulnerable members of society, trapping them in a cycle of debt that is very difficult to escape.
It’s not enough to work with a legal money lender, though.
You should also choose a trustworthy agency that has proved its expertise and customer support after serving the Singapore market for years.
Lending Bee promises to give you all that and more.
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.