For someone who needs to borrow money. There is good news. You have many options for obtaining money. The bad news is not all these options are perfect. Choosing the wrong lender might land you in more debt. Below are the differences between them:
Who can Lend You Money
There are 4 types of organizations that may lend you money. Their practices vary. And they provide for the various types of borrowers:
- Licensed Money Lenders
- Pawn Shops
- Non-bank financial institution
Certified moneylenders typically offer mall loans. These go up to $10,000). Although some can offer larger amounts to few clients. Their loans may be unsecured (no form of collateral, that you let them seize when you don’t repay), or secured. These lenders deal with the customers individually.
Even as they check the credit record and income. They will vary their interest rates. or even the amount of the loan. And this they base on their own judgment. Due to the risk involved, they charge high interest. The rates depend on your earnings:
When you earn below $30,000 per year. These legal money lenders might charge maximum 13% on secured loans. And 20 percent of the unsecured loans. When you earn more than $30,000 a year. Then the limit doesn’t apply. It can happen that at times the interest rates go above 25%. To compare, the most costly personal loans by banks. They have 8% interest rate per year. Credit card loans, that are said to be the priciest, charge 24% per year. The majority moneylenders need predetermined monthly repayments. But these terms can be negotiated.
The Pros Of Borrowing From Moneylenders
- They will give you loans even when banks have rejected your application.
The Cons of Borrowing from Moneylenders
- Money lenders focus on individuals who don’t qualify for bank loans. They have few or no benefits as compared to banks. They are the last alternative for low-salaried foreigners. (Those having a hard time getting their loan approved). or even frequent defaulters.
They are the most-known credit sources. Banks may be divided into private banks and retail banks. Retail banks provide “mass market” loans. In recognizable forms like the car loans, credit cards, business loans, personal instalment loans, etc. The variety of their loan products is very large. But enough to have most borrowers needs to be fulfilled.
- They value their name. Thus they are subject to strict industry standards. They also follow strict government policing.
- Banks will offer revolving credit facilities. This they offer by use of credit cards. In using revolving credit, the application is different. Each time you need a loan you don’t have to do new loan applications. That is each time you wish to borrow money.
- Banks will offer bigger personal loans. This is when compared to other borrowing options listed.
- They may charge much lower interest rates. This is when compared to other listed options here. Particularly for certain loans like home and education loans.
- It’s generally easier to repay the banks. You may do so online, by mail, from one of their many ATMs. You can also repay in their branches as well. The other alternatives on the list often need you repay in person.
- Banks have strict standards for most borrowers. For instance, the Debt Servicing Ratios DSRs) plus minimum wages requirements. Not everybody may qualify for personal loans from banks.
- When you don’t repay them on time there are consequences. Your creditworthiness is damaged by all the other banks. (And some other financial institutions in Singapore). When you have defaulted on bank loan before. It’s possible you will have little chance to borrow from banks at all.
In bringing your valuables to the pawn shop (e.g. a gold watch). The pawnbroker will lend you an amount of money. This may range from 60 to 80 percent of the worth of the item. So when you choose to pledge a watch worth $10,000. The pawn shop broker may lend you $80,000. The precious item left at a pawn shop is known as a “pledge”.
Beginning from the moment you obtain the personal loan. You get six months for you to repay the whole loan and interests. When you do not honour that, the pledge is sold. Normally the pawn shop broker will auction it off. This way they will be able to recover their loan money. A usual interest rate for this loan is 1 percent. This is normally for the initial month. And the charge is 1.5 percent for the following months. (Its lower than average credit cards rates that charge 2% a month).
Remember that these repayments aren’t fixed. For instance, you can decide to pay back $50 for one month. $700 for the next month, or $400 for the month following, etc. every time you repay, the pawn shop postpones the auctioning. This means they keep the pledge for another 6 months.
- What you need to obtain a loan is identification. (Your IC) and also the pledge. Your wages, credit record, and the outstanding loans don’t matter.
- Failing to pay back the loan, you only lose your pledge. This differs from credit cards or personal loans. Since the debt continues to compound when you do not pay.
- A rate of interest of 1.5% each month is charged. This is lower than that of a credit card. But it’s still very high when compared to personal loans by banks.
- Pawn shops offer you a one-off loan type. There do not have revolving loan facilities.
- The loan amount you may borrow is limited. This is often based on the worth of the pledge.
- You will have to own an item worth pawning. This way you are able to get a loan.
You have many options for obtaining money. However, picking the wrong lender can land you in more debt. Therefore, read more about the different lenders. This way you will know the best lender to choose.