Does The Lower Interest Rates For Licensed Moneylenders Entice You To Borrow?
In Singapore, new regulations for moneylenders took effect on 1st October. These increased controls are intended to limit the costs of borrowing for customers. This will give them more security by making sure that they do not get subjected to steep fees and interest rates.
A big variation was noted in the cost of rates of interest that may be charged on the personal loans and Money-line. When this rule changes it might lead to more people opting for moneylenders lending facilities.
Authorized Moneylenders in Singapore
In Singapore, the moneylenders are licensed under the Moneylender’s Registrar. By getting a license, moneylenders will have some limitations placed on personal loan amounts that they are allowed to lend. This will also dictate the rates of interest acceptable that they can charge. This comes in addition to fees that they are to charge on loans. Also, this means that they will have passed the compulsory moneylender’s test.
Borrowers in Singapore need to recognize that the moneylenders are businessmen. For this reason, it is important for them that they attain a good reputation. Thus, licensed lenders do not wish to chase away their potential customers.
If a licensed moneylender needs to go after a borrower, then it will only be done by the use of reminder letters. This method is not different from the legal methods employed by banking institutions.
What The New Rules Are
Loans offered by licensed moneylenders will be affected by these limits:
- Late repayment fees not exceeding S$60 a month
- an administrative upfront fee not exceeding 10 percent of the principal amount
- interest rates not exceeding 4% a month
- late payment interest not exceeding 4% each month
- total lending cost not exceeding 100 percent of the principal loan amount
Therefore, for example, if Harry opted to take out a $10,000 loan from an accredited moneylender, the full borrowing cost for a month will be:
Upfront administrative charge: 4% * $10,000 = $400
Interest each month: 4% * $10,000 = $400
Total borrowing costs for a month given that there are no late repayments – $10,800
In the past, moneylenders were permitted to charge an effective rate of interest of 13 percent for secured loans while interest of about 20 percent on the unsecured loans. These loan amounts may easily become twice the principal amount in several months. Therefore with these new guidelines, the full borrowing costs are capped at 100 percent of the principal amount as well.
What This Means for borrowers
Initially, the borrowers might look at the very reduced interests with much delight. Certainly, this is more than a reduction of 100 percent. But then again, keep in mind that these interest rates are limited on a monthly basis.
Let us say you get a personal loan with a 12-month loan tenure and on combining interest rates, that are 4% each month will become 60.1% per year. This will shift the $10,000 personal loan to about $16,010. This makes borrowing using your credit card much cheaper!
Borrowing from Banks vs Licensed Moneylenders
For someone who is just making comparisons between interest rate basis, then getting a bank loan will make more sense. But then again, you will have many more practical criteria that you have to consider before you choose the right one that will best address your financial needs.
Typically the banking institutions are more strict on the lending criteria thus your credit record will be essential. When you have a record of late repayments on bank loans or credit cards, you will face instantaneous rejection. But then, licensed moneylenders are not focused on a borrowers credit rating.
Thus they are probably more lenient in the kind of collateral that you might use to obtain a personal loan from them. It is for this reason that moneylenders will charge much higher interests since they might incur a higher default risk from their borrowers.
Usually, the licensed moneylenders in Singapore offer personal loans with much smaller amounts. For example, banks might not be ready to extend a loan of just several thousand dollars to their clients for a short time period.
Under normal circumstances, the loan period needs to be for a period of at least one year. Therefore, when you want to take out only a few thousand dollars for solving a cash flow difficulty and yet be able to pay back the loan amount fast. Then a licensed moneylender might be more helpful to you.
Owing to the many credit checks required by the banking institutions, then your loan application might take a lot longer time. This might not be the best loan option when you require some money urgently.
When you already have put together all the necessary documents, then moneylenders might grant you that personal loan you requested within the same day.
Normally most licensed moneylenders in Singapore will not share info regarding their rate of interest through phone or by email. A few other licensed moneylenders might choose to talk with you only on a face-to-face basis.
By law, the licensed moneylenders are expected to explain the loan agreement terms to their borrowers every time. In so doing, they will be offering their borrowers the opportunity to ask for any clarification concerning any loan terms that may not be easy to understand. Also, it will be a chance for borrowers to bring up their specific financial situation.
This will make certain that they can obtain a loan which is tailor-made for their particular needs. Even with this, it is recommended that you ensure that you to do thorough research.
Doing so you will be able to make a comparison of various interest rates being charged in the market. This will help you find the right lender who offers lowest rates which are favorable for you.
The new regulations for moneylenders will limit the borrowing costs for customers and will give them more security by making sure that they do not get subjected to steep fees and interest rates.
Even then ensure you consider the above-mentioned factors for borrowing to ensure you get the best loans packages from licensed lenders.