Illustration of a shark tempting a man who is thinking of borrow and lend.

How to differentiate between licensed money lenders and loan sharks for borrow and lend?

Occasionally, you will run into situations where you’ll need some money urgently and will turn to the different kinds of fast cash loans to tide you through. Many would choose a licensed moneylender in Singapore as an alternative for borrow and lend from the bank. Licensed moneylenders are more likely to approve your fast cash loans quicker than a bank normally would. However, there has been a rise of incidents where loan sharks are posing as “licensed” moneylenders preying on people who lacked the knowledge about legitimate places to borrow and lend in Singapore. Hence, this article will share how to differentiate between licensed moneylenders and loan sharks for borrow and lend.

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 unlicensed, therefore they are illegal.

Typical characteristics of a licensed moneylender in Singapore:

1.  Will explain the terms of your loan transparently

Before taking up any kind of fast cash loan, you will need to fully understand the terms of the loan i.e. the loan amount, repayment terms, and even late payments fees. Therefore, a loan disbursement 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 in understanding English, you can always request for an officer who speaks your language so that you fully understand the terms and conditions of the loans.

2.  Will always make you sign a contract

Like any legally binding terms, there needs to be documentation. The contract will need to state everything there is to know about your payday loan, including the interest you’ll have to pay monthly. Licensed Moneylenders in Singapore are required to verify your identification physically before approving and disbursing your fast cash 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.

 3.  By law, licensed moneylenders can only charge 3 types of fees (not including interest)

Currently, the maximum interest rate that can be charged is at a standardised 4% per month. A licensed moneylender for borrow and lend legally in Singapore will never charge customers higher than the amount. The three types of fees a licensed moneylender can charge are: late payment fee, up-front service fees (no higher than 10% of the loan value), and legal fees. 

Late payment fees only kick in when the borrower defaults on the loan. The fees do not exceed $60 monthly and the late interest does not exceed 4% of the amount the borrower has yet to pay.

The key things you need to know about loan sharks in Singapore

1. They include extra charges that aren’t disclosed

Loan sharks may be a more tempting option for borrow and lend as they may be “less strict” about granting loans to a borrower – they may not ask about your income or your credit score. However, they may not offer you a loan contract, and even if they do, they might be incomplete, or the conditions of the loan may be vague. As these loan shark businesses are not bound by Singapore law, they may introduce extra fees and raise penalties whenever they please. Additionally, they may charge exorbitantly high-interest rates- think 40% of your payday loan principal amount.

2. They harass and threaten you if you are unable to pay your loans in time

Loan sharks may act friendly and approachable to get you to borrow and lend from them initially, only to turn nasty when it is time to collect the money owed. 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 fees. In some cases, the loan sharks will harass the borrower’s guarantors, family members, and even neighbours – they will do whatever it takes, to intimidate you to settle your payday loan debt. Licensed moneylenders are not permitted by law to exercise any of the above tactics.

 3.  They work remotely, and loan shark businesses are almost certainly connected to other illegal activities

When you deposit your money into a bank, it will then be invested and may be used to fund legal ventures.  Even if you have diligently paid your debts (plus the high-interest rates charged), the money you give will very certainly be used to fund other further unlawful activities that we should not be financing.

Licensed moneylenders in Singapore are obligated by law to have an office that matches the one listed on the Ministry of Law website, while a loan shark will most often not operate from a physical office space. Since they are an illegal business, their practices may not abide by the rules and regulations of Singapore.

Tips to protect yourself from loan sharks:

 

It is critical to learn about the many types of moneylenders available to borrow and lend to ensure your financial safety. Loan sharks, in thousands, are operating in Singapore, preying on innocent ones who lack the research necessary to make informed decisions. 

All licensed moneylenders in Singapore only process loans in the office and will need you to be physically present before disbursing the loan, while loan sharks more often work remotely. All licensed moneylenders charge a maximum of 4% of interest monthly, anything higher is most likely a loan shark. Hence ensure that you always check with the Registry of Moneylenders before choosing a moneylender for borrow and lend. 

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