1) What should I consider before taking up a loan?
You should keep these key points in mind:
- Before approaching a moneylender, consider other alternatives, such as the various financial assistance schemes offered by various Government agencies. You may contact the agencies to find out more about their schemes.
- Any loan contract you entered into with a licensed moneylender is legally binded.
- Decide whether you are able to abide by the contractual terms, considering your income and financial obligations currently and in future. Borrow only what you need and are able to repay within an agreed timeframe. Be mindful that if you are unable to meet the contractual terms, the late payment fees and interest payment will be imposed, adding to you some financial strain.
- Singapore law requires moneylenders to explain the terms of a loan to you in a language you understand and to provide you with a copy of the loan contract. Make sure you fully understand the terms of the contract, in particular, the repayment schedule, the interest rate charged and the fees applicable before you commit.
2) What are the fee or interest rates moneylenders can charge?
With effect from 1 October 2015
, the maximum interest rate moneylenders can charge is 4% per month
. This cap applies regardless of the borrower’s income and type of loan (secure or non-secure).
The computation of interest charged on the loan is based on the amount of principal remaining after deducting from the original principal the total payments made which are appropriated to the principal. [To illustrate, if X takes a loan of $20,000, and X has repaid $8,000, only the remaining $12,000 can be taken into account for the computation of interest.]
- a fee not exceeding $60 for each month of late repayment;
- a fee not exceeding 10% of the principal of the loan when a loan is granted; and
- legal costs ordered by the court for a successful claim by the moneylender for the recovery of the loan.The total charges imposed by a moneylender on any loan, consisting of interest, late interest, upfront administrative and late fee also cannot exceed an amount equivalent to the principal of the loan. [To illustrate, if X takes a loan of $10,000, then the interest, late interest, 10% administrative fee and monthly $60 late fees cannot exceed $10,000.]
3) How do I tell whether a moneylender is licensed or not?
Verify that a moneylender is licensed by checking the list of licensed moneylenders here
4) In the event that I am standing as a surety for a loan, what should I look out for?
You should ensure that:
- You understand your responsibilities as a surety;
- You receive a copy of the Note of Contract at the time that the loan is granted to the borrower;
- The moneylender has explained the terms in the Note of Contact in a language that you understand.
5) What should I do after being granted a loan?
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- Make sure the moneylender delivers to you the correct principal amount of the loan. The moneylender is permitted an upfront deduction of a loan approval fee of up to 10% of the principal amount.
- Pay the loan instalments on time to avoid incurring late payment fees and late interest.