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Taking a Loan from Licensed Money Lender Vs Bank

Without a doubt, personal loans have helped thousands of families and individuals in Singapore. People in need of money resort to borrowing from financial institutions. But, for a borrower, borrowing money is a choice between licensed money lenders vs banks.

This article lays down the differences between these two choices. It points out the advantages and disadvantages of choosing one over the other in certain aspects of personal loans. After reading this article, borrowers can hopefully identify which for them is the better option.

Loanable Amount

To better understand the difference between banks and money lenders, it is crucial that we see how the two are different in size and their target market.

Often times, banks are bigger businesses, and they target clients with extensive credit record. Meanwhile, money lenders are smaller businesses, and they target smaller clients who either have bad credit or do not have any credit record yet.

Given the size of the banks, they are able to offer higher loan amounts but have to choose only clients who can surely pay their debts.

One of the key differences between licensed money lenders and bankers is the amount they lend to borrowers. Most of the time, banks offer a higher amount of loans compared to licensed money lenders. Banks can give a loan 2-6x the monthly salary of the borrower or up to $200,000. On the other hand, money lenders can only loan up to 6 months of your salary. This does not mean though that banks are better than licensed money lenders. Note that there are advantages and disadvantages in choosing between these two options.

Remember that moneylenders and bank companies have their own policies and guidelines when it comes to personal loans and other types of loans. You can always check out these financial institutions to see if they have specific deals fit for your situation. You can also negotiate with their representatives to make sure that you get the best deal possible. As a borrower, do not be afraid to ask and clarify things that you do not understand.

Approval Speed

As mentioned above, banks have to be picky when it comes to approving loans. They have to make sure that the client is capable of paying back their loans. As a result, it usually takes a day or two for a bank to approve a loan. This is long compared to licensed moneylenders who have applied online and visit the office physically that may take between 30 minutes to an hour.

Also, applying for a personal loan in a bank in Singapore might require more days. Usually, it would take days or even weeks for borrowers to prepare the necessary documents to apply for personal loans. Hence, if you are planning to take loans in the future, consider this factor too. You might need to take more time preparing for the support documents asked by banking companies.

Eligibility & Requirements

Banks in Singapore often require a lot of requirements before approving a loan. Aside from asking for personal information and various identity cards, they could even ask for supporting documents like the purpose of the loan, business plan, business experience, cash flow, financial statements, and many more. This is in contrast to moneylenders who would often only ask for supporting documents like payslips or other proof of income.

Moreover, a bank only provides loans to clients who have a high income. Singapore citizens or permanent residents must have an annual income of at least $18,000. In contrast, foreigners must have an annual income of at least $24,000 in order to be eligible for a loan. In the case of licensed money lenders, clients with a small income are still eligible for loans but will be given a smaller loan amount.

Credit History

In order to limit the risk they have to take, banking companies ensure that borrowers are capable of paying back their loans. To do this, they scrutinize the loan history of their clients. They only approve loans for clients with a high credit rating. This is understandable because banking companies are willing to lend a big amount of money. This is their way to ensure that they are giving out loans to individuals or groups who are financially capable and responsible.

In contrast, licensed moneylenders might be willing to approve loans even to those with a bad credit record. Borrowers have a higher chance of getting their personal loans approved by a moneylender than a bank. Here are some tips on how to improve your credit rating to avoid bad credit report to successfully get your personal loans approved.

Interest rates

Since licensed moneylenders take a higher risk compared to banking companies, they tend to have a higher interest rate. Licensed moneylenders in Singapore can charge up to 4% interest rate per month. While banking companies usually charge 3-4% interest rate per month. Note that each financial institution has its own set of interest rates. You can contact institutions to know the exact interest rate on the personal loans and other loans they offer.

But, do not think that licensed moneylenders in Singapore have unreasonable interest rates. Note that licensed moneylenders in Singapore are required to abide by the laws and regulations set by the Ministry of Law. This means that a licensed moneylender should not charge more than 4% interest rate.

In Summary

In order to better see the differences between banking companies and licensed money lenders in Singapore, check out the table below. See how, in certain aspects, one is more favourable than the other. This indicates that borrowers must study their situation before applying for a loan to either licensed moneylenders or banks in order to identify which of these options work better for them.

Licensed Money LendersBanks
Loanable AmountUp to $1,500Up to $200,000 or 2-6x monthly income
Approval Speed30 minutes to an hour7 days
Eligibility and RequirementsBasicComprehensive
Credit HistoryCan be bad or no historyMust be good
Interest RatesUp to 4% each monthAround 3-4% each month

Whether you choose to apply for loans to a licensed money lender or a banking company, it is important to remember that you must only borrow money from legal and licensed financial institutions. You should never deal with loan sharks. While loan sharks might show you better deals and financial products, they often resort to harassment and violence when collecting for repayments. Also, their unfair interest rates could pose a huge problem for you in the future.


Truth be told, licensed money lenders and banking companies in Singapore have different types of clients. For individuals who have a bad credit record or have not yet established one, going to a licensed moneylender might be the best choice. Though a licensed moneylender has higher interest rates, it has a more lax policy when giving out loans. Also, a licensed money lender is a better fit for individuals who are in need of cash immediately for emergency situations.

Take note that as borrowers, we have our own financial problems and situations. Hence, we have to take in consideration our personal status before choosing which financial institution to choose. Reflect on how much money you need, when you need it, and how you can prove your creditworthiness. Do your own research before applying for personal loans and other types of loans.

To help you weigh in on your choices, you can check out Instant Loan. We have compiled a lot of materials and resources to help people in deciding their personal loan and other applications.

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