Occasionally, you may run into situations where you need some money urgently and end up turning to different kinds of loans to tide you through.
Some may opt to take a bank loan, while some may prefer to take a loan from a licensed moneylender instead due to the less stringent credit checks and faster approvals.
However, there has been a rise in cases where loan sharks are posing as “licensed” moneylenders, preying on people who lack knowledge about legitimate places to take a loan in Singapore. This often results in the borrower having to pay off a large sum of interest and dealing with unnecessary harassment.
How can you avoid borrowing from loan sharks by mistake? Here, we will share 8 ways to tell the difference between licensed moneylenders and loan sharks.
Differences between licensed moneylenders and loan sharks
|Licensed moneylenders||Loan sharks|
|Must have a physical office registered with Minlaw.||Yes, you can find the list here with the registered address.||No, using a non-registered address.|
|Using a landline approved by Minlaw.||Yes, you can find the list here.||No, using a non-registered landline.|
|Using a website approved by Minlaw.||Yes, you can find the list here.||No, using a non-registered website.|
|Sign loan contract in office.||Yes. All contracts need to be signed in a registered office. You can find the list here with the registered address.||No, but some loan sharks will ask you to sign a contract online or in a public place as they want to act as a genuine licensed moneylender and get hold of your particulars.|
|Required to go to the office for a face-to-face verification loan application.||Yes, by law.||No, in most cases they will not even show up. All processes are done online or via messages.|
|Ask for your SingPass ID and password.||No, licensed moneylenders are not supposed to do that.||Yes, in most cases they do ask for borrowers’ SingPass ID and password. To escape the police, they avoid face-to-face verification. The only way to verify borrowers is using their Singpass and login into government websites like the CPF website to retrieve borrowers’ information and income proof.|
|Cap on interest rates and fees charged.||✅ Interest rates capped at 4% a month
✅ Late payment fees of no more than $60 a month
✅ Late interest fees capped at 4% a month
✅ Legal fees for loan recovery
|❌ No cap on interest charged
❌ High interest rates and fees
|Required to pay an upfront payment before the loan is approved.||No, this is illegal.||This is a loan scam. There are many loan scams now, including those done by loan sharks.|
|Send a receipt to the borrower after every payment is made.||Yes. Receipts have to show payment breakdown, how much goes into principal, interest, late charges, and the outstanding amount owed.||No|
|Send a half-yearly statement of account to the borrower in Jan and July before the 21st of the month.||Yes||No|
|Advertising channel||Can advertise only through these three channels:
All other channels are prohibited.
|Flyers, SMSes, emails, or other forms of advertisements are not permitted under the rules.|
1. Moneylender license and registration with MinLaw
The main difference between licensed moneylenders and loan sharks is that the former operate legally and are registered under the Ministry of Law and listed on the Ministry of Law website, while loan sharks operate illegally, and will not be found in this list.
A licensed moneylender will also have its license certificate displayed in its office in a location where it can be seen. A loan shark, however, will not have this license certificate.
Licensed moneylenders in Singapore are only permitted to use specific communication channels such as a landline and website that are registered with the Ministry of Law. This means that messages or calls from unknown numbers or unverified online platforms are most likely to come from unlicensed moneylenders.
2. Loan disbursement and contract signing
Before a loan is disbursed to you via a licensed moneylender, you will need to sign a loan contract, in which the loan terms will be written clearly. You will need to fully understand the terms of the loan i.e. the loan amount, interest, repayment terms, and even late payment fees.
Therefore, a loan officer will have to go through every single clause, without leaving anything out, and in a language that you’ll understand. For example, if you are not comfortable understanding English, you can always request an officer who speaks your native language so that you fully understand the terms and conditions of the loans before signing your name on the dotted line.
Loan sharks may present you with no contract, and even lead you to sign a blank one. Even if they do have a contract, it is usually one with vague clauses.
If a moneylender outright refuses to explain the loan or seeks to confuse you with technical and unnecessary jargon, you are most likely dealing with an unlicensed moneylender.
3. In-person verification of identity
Although you can apply for your loan online on licensed moneylenders’ websites, licensed moneylenders in Singapore are required to verify your identification physically before approving and disbursing your loans. Therefore, loan contracts must be signed in person at the licensed moneylender’s registered business address, and loans must be collected in person as well.
Loan sharks, however, may prefer to deal with you remotely such as through calls, WhatsApp, or SMS, and they most often do not operate from a physical office space. Your loan can be disbursed to you even without meeting them face-to-face.
The money you give will very certainly be used to fund other further unlawful activities and their practices may not abide by the rules and regulations of Singapore.
4. SingPass Usage in the Loan Application Process
Licensed moneylenders in Singapore are regulated by the Ministry of Law and are required to adhere to strict guidelines. They are not allowed to ask for a borrower’s SingPass ID and password.
While some licensed moneylenders may use the SingPass system to retrieve a borrower’s information for convenience, they would not ask you to hand them your ID and password.
On the other hand, unlicensed moneylenders may use this as a way to gain access to personal information and even bank accounts, putting borrowers at risk of fraud and identity theft.
5. Cap on interest rates and fees charged
Currently, the maximum interest rate that can be legally charged by licensed moneylenders is 4% per month.
Besides the interest rate, the three types of fees a licensed moneylender can charge are (i) late payment fees, (ii) up-front service fees (no higher than 10% of the loan value), and (iii) legal fees.
Late payment fees only kick in when the borrower defaults on the loan. The fees do not exceed $60 monthly (for each month of late repayment) and the late interest on the overdue amount does not exceed 4% monthly.
If the borrower defaults on the payment and the licensed moneylender files for litigation against the borrower, the borrower will need to pay the legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.
If you are charged higher fees than what is stated, you are very likely dealing with a loan shark.
As loan sharks are not bound by Singapore law, they can introduce extra fees and raise penalties whenever they please. Additionally, they may charge exorbitantly high-interest rates.
6. No upfront payment is required before loan approval
Licensed moneylenders are prohibited from asking for upfront payment or processing fees before loan approval. This is to ensure that borrowers are protected from loan scams and fraudulent practices. Any licensed moneylender found violating this rule may face legal repercussions and may have their license revoked.
On the other hand, unlicensed moneylenders may resort to such tactics to deceive borrowers and extort money from them.
7. All documentation must be in place
In addition to issuing a loan contract, licensed moneylenders in Singapore are required to provide borrowers with a receipt after every payment. The receipt should include a breakdown of the payment, including how much goes towards the principal amount, the interest charged, and any applicable late charges. The outstanding amount owed should also be clearly stated.
Furthermore, licensed moneylenders must also send a half-yearly statement of account to the borrower in January and July. This is done to provide the borrower with an update on their outstanding balance, payments made, and any applicable fees or charges.
On the contrary, unlicensed moneylenders tend to be vague in giving updates. They would do away with documentation to ensure they can change the loan terms and conditions to their benefit.
8. Advertisements could only be done through approved channels
Licensed moneylenders in Singapore are only permitted to advertise through three channels, which are consumer or business directories, their registered website, or advertisements placed within or on the exterior of their official business premises. Any other form of advertising, such as flyers, SMSes, or emails, is prohibited.
Borrowers should be aware of these rules and ensure that they are only dealing with licensed moneylenders who comply with them. Any advertisements received outside of the permitted channels may not only be illegal but also likely to come from unlicensed moneylenders who may engage in fraudulent activities.
What Happens When You Engage With A Loan Shark
You may hear about the lengths loan sharks go to get their payments from borrowers. “O$P$” splashed in red paint across the front door of debtors, incessant threats, and the use of abusive language are often methods they use to collect debts.
Loan sharks may act friendly and approachable to get you to borrow from them initially, only to turn nasty when it is time to collect the money owed.
The legal binding of loan shark contracts
If you decide to take out a loan from a loan shark, you might end up signing a disadvantageous and vague contract. Yet, the contract binds you to the terms of the loan, which can include exorbitant interest rates and hidden fees. If you fail to comply with the terms, you may face penalties, which can make your financial situation even worse.
The consequences of borrowing from a loan shark: harassment
One of the most unpleasant consequences of borrowing from a loan shark is the harassment that you and your family members may experience.
Loan sharks would employ various tactics to ensure that you pay off the loan, including making threatening phone calls, sending intimidating letters, or even visiting your home or workplace to make a scene. This can create an extremely stressful and uncomfortable situation for you and your loved ones.
On the other hand, licensed moneylenders are not permitted by law to exercise any of the above tactics. They can only either send you a Letter of Demand (LOD) to your residential or employer address, visit your home or workplace to recover the debt or file for litigation against you.
The persistence of harassment and its impact on financial struggles
Unfortunately, the disturbance will not stop until the loan and its high interest are fully paid off. This can be particularly challenging if you are struggling to make ends meet and are already under a lot of financial pressure. You may find yourself constantly worrying about how you will manage to make your payments and avoid the constant harassment from the loan shark.
Engaging with a loan shark is not only risky but can also have serious consequences. The high interest rates and hidden fees can make it extremely difficult to repay the loan, while the harassment can make your life miserable.
Tips to protect yourself from loan sharks:
- Don’t disclose any sensitive information (SingPass, NRIC, bank details).
- Don’t sign a contract if it lacks important information.
- Don’t act as a guarantor for any illegal loans.
- Report any hostile treatment to the authorities.
- Most importantly, do not engage with them in the first place.
Take a loan from the right licensed moneylender with affordable interest rates
It is critical to learn about the many types of moneylenders available to ensure your financial safety. Loan sharks, in thousands, are operating in Singapore, preying on innocent ones who lack the knowledge necessary to make informed decisions.
Many licensed moneylenders and debt consolidation companies in Singapore are trustworthy and operate lawfully to give the best loans to borrowers. Also, always remember to check the moneylender’s reviews on Google. A good and reliable licensed moneylender will usually have many good reviews.
If you have followed the tips above and found out that you’ve been talking to a loan shark, you should walk away and not proceed with doing business with them.
There are plenty of licensed moneylenders in Singapore offering reliable and low-interest loans, including us here at Goldstar Credit.