What Are The Interest Rates Moneylenders Can Charge?
Money lending is a legal part of the consumer credit market in Singapore. And licensed moneylenders will offer personal loans to you when you need them. Lending rules have been established to track the activities of moneylenders. Thus, ensuring that borrowers are not overcharged on interests or other applicable costs on personal loans.
Although moneylenders represent a small part of the lending market in Singapore, there is a set of rates that they can charge their borrower. What interests can moneylenders charge their borrowers?
Here is a look at the permitted charges on loans offered by moneylender? Here goes!
Interest Rates of Moneylenders
To start with, keep in mind that there are 2 loan types in Singapore: unsecured loans and secured loans.
– Secured loans are offered to borrowers after they put up collateral, like your house title or car title etc.
– Unsecured loans are provided to borrowers without offering security but based on your credit score. A healthy score will indicate your ability to repay the debt, while a poor credit score serves to only discourage potential moneylenders from authorizing your loan request.
As of 2015, moneylenders in Singapore have been authorization to compute and share with borrowers the EIR (Effective Interest Rate) on the personal loan they are taking before offering it to them. EIR is worked out by taking into account the full effect of regular loan payments within a span of one year.
What then is EIR?
EIR is the interest method that seeks to reflect the actual cost of getting a loan within a span of a year.
Bearing this in mind, those loans that were given from June 2012 to September 2015 attract the following charges:
- When your annual salary amounts to below S$30,000, you will incur a 13 percent EIR for the secured loans
- When tour annual salary amounts to below S$30,000, you will be charged a 20 percent EIR for the unsecured loans.
However, since October 2015, moneylenders are expected to limit their interests at 4 percent a month. This is regardless of the clients’ yearly income and disregarding whether the personal loan taken is unsecured or secured.
When you fail to pay back your personal loan, the maximum rates of interest that licensed moneylenders will charge you is set at 4 percent a month.
The rates of interest that you incur on any late repayments are only to be applied to the amount you did not pay. Let’s say you skipped repaying for one month, the interest for the late payments are only charged on that month you skipped.
What should I consider before getting a loan?
You will need to bear the following important points in mind before you borrow:
Start by considering alternative options available before you approach a moneylender. Some of these include the different schemes offering financial assistance provided by various Government agencies. To find out more about their schemes, contact the agencies.
Take time to do thorough research and shop around various moneylenders to get the best loan terms possible. Avoid rushing into and committing yourself to any loan until its conditions and terms are acceptable for you.
Remember that you are by law obliged to satisfy any loan contract that you sign with a certified moneylender. So, when you sign a contract with a licensed lender, you will be expected to keep your end of the requirement, failure to which you can be prosecuted by law.
Look at whether you can follow the loan contractual terms, considering your financial obligations and income. Only borrow what you require and can comfortably repay. Be cautious that when you are cannot meet the contractual loan terms, late fees and the interest payment can become a financial strain not only for you but for your family too.
Require By Law
Moneylenders are by law required to explain the loan terms to you in an easy to understand language and offer you a copy of your personal loan contract. Ensure that you fully clear on the contract terms. And particularly, the repayment plan, the rates charged as well as the applicable fees.
Carefully consider before accepting any contractual term that permits moneylenders to place a caveat on sale returns of your property. This is typically in case you default on loan repayment. If a caveat is placed against your real estate property, then you cannot sell it without first paying the moneylender back and in full.
Also, when repayments are deducted from the net returns from the sale of your property, it could wipe out a substantial amount or all the proceeds.
What do I need to consider after being granted a loan?
Ensure that the moneylender gives you the accurate principal loan amount. Remember that the moneylender is allowed to have an upfront deduction amounting up to 0 percent of the principal amount in approval fees.
Be sure to repay the monthly installments punctually so as to avoid attracting late payment fees as well as late interest. Such costs will only increase the total amount you will end up paying for the entire loan.
Also, ensure that you are issued with a signed and dated receipt by your moneylender. This has to be every time you pay your loan back or use cash to pay for any fees and confirm it for correctness (example, amount, name, date).
Ensure that you get statements of account for each of your personal loan(s) once every six months. Also confirm it to ensure it is correct (check date, name, amount); and
Keep your documentation and proof of payment updated. Ensure that you keep all receipt for payments made and statement of accounts safely.
To help keep both the borrowers and moneylenders safe, the Singaporean government has established rules and regulations that help check moneylenders.
Even though these rules are not as less stringent than they were a while back. They still are in place to guarantee that licensed money lenders conduct fair trade with their customers. And borrowers do not get overcharged on the interests placed on loans taken.