How Do The Licensed Money Lender New Rules Protect You?

Financial services in Singapore are regulated, especially moneylending. There’s a full set of rules and regulations which is updated regularly. What’s more, people are further protected from unlicensed moneylending by the authorities’ quick actions.

If you’re borrowing from a private money lender, there are rules you must know about. These include new rules for licensed money lenders, and laws which have been present since the Moneylenders Act was created.

Continue reading to learn every important rule before you apply for a loan.

What is the Moneylenders Act?

The Moneylenders Act was enacted in 1936 as the Moneylenders Ordinance, with the latest version being implemented in 2008 and receiving several updates since. This Act regulates licensed lenders in Singapore and protects borrowers. It contains a set of money lender rules for all legal loan companies.

What are some money lender rules you need to know?

There are five crucial money lender rules in Singapore. This allows you to avoid unscrupulous lenders, and ensure you’re safe if a dispute arises.

1. Money lenders must be licensed

This goes without saying, but money lenders must obtain a licence before taking on loan applications. The list of licensed lenders in Singapore is available online. Rest assured that this is kept up to date. If a lender is not on it, simply contact another company instead of dealing with an unlicensed firm.

2. Interest must be based on the principal amount after deducting payments made so far

Licensed lenders charge a monthly interest rate. This rule makes the interest you pay for each monthly instalment fair. For example, if you take up a $5,000 personal loan and repay $1,000, only the remaining $4,000 from the principal amount can be used in interest calculations.

3. Licensed lenders must give borrowers a copy of the signed loan contract

When the company and borrower have identical copies of the signed loan contract, it ensures both parties abide by its terms. There’s a point of reference in the event of a dispute as well.

If the lender alters the principal amount, interest rate, or any other fee after the borrower has signed the contract, the company’s licensee can be fined and/or jailed. This shields the borrower while acting as a deterrent.

4. The maximum interest and late interest rates are capped at 4%

In 2015, the Ministry of Law dictated a 4% maximum monthly interest rate for secured and unsecured loans from licensed lenders. This limit applies no matter the borrower’s annual income, and to late interest charges, too.

These money lender rules prevent licensed companies from setting unreasonably high interest rates and trapping borrowers in debt.

5. Licensed lenders are not allowed to harass or be aggressive towards borrowers

Licensed lenders are businesses regulated by the Ministry of Law. Therefore, they must act professionally. Thanks to their regulated status, there are legal solutions available should borrowers repay their loans late or default on their debt entirely.

This protects borrowers from undue stress, too, as a loan is often taken up only during serious emergencies.

What are the new licensed money lender rules, and how do these protect you?

1. Unsecured loan caps are aggregated across all licensed money lenders

In 2018 and 2019, the Ministry of Law made new rules for licensed money lenders regarding unsecured loans. To shield individuals from taking on excess debt, your unsecured loan cap is combined across all licensed lenders at any one point in time.

For example, you’re a Singaporean earning $10,000 annually who needs a renovation loan. You can borrow up to $3,000 in total from multiple licensed lenders (i.e. $1,500 at Money Lender A and $1,500 at Money Lender B).

2. Licensed lenders must obtain a Loan Information Report on the borrower before accepting their application

This new licensed money lender rule took effect in 2016. Firms need to purchase a loan information report on an applicant from the Moneylenders Credit Bureau before they can approve their application. This lets companies determine the borrower’s creditworthiness, and prevents them from overborrowing.

Like the other rules for money lenders in Singapore, it helps individuals manage debt and stop them from borrowing beyond their earning capabilities.

3. Individuals can exclude themselves from being able to apply for a unsecured loan from a licensed money lender

Among the new licensed money lender rules, this one’s for individuals specifically. If you want to avoid loans as much as possible, you can exclude yourself from being able to borrow from a licensed lender via the Moneylenders Credit Bureau website. However, you cannot withdraw your exclusion early. Thoroughly think through your decision before making it.

4. More stringent loan terms and contracts

Remember, legal action can be taken against licensed lenders who alter the terms of a loan contract after it’s signed. This also applies to other aspects of a loan. For instance, companies cannot approve loans which exceed one’s borrowing limit. Should they do so, they will be fined up to $20,000.

In the set of money lender new rules, there’s a maximum amount for interest, late interest, and other permitted fees combined, too. This prevents firms from locking borrowers in perpetual debt.

5. Enhanced requirements for licensed lenders

Across several years, the requirements for licensed lenders became stricter due to new money lender rules in Singapore. For one, a $20,000 security deposit is needed for each office the company has. Additionally, at least $100,000 in paid-up capital is required.

These ensure only compliant companies with sufficient capital are operating, granting borrowers peace of mind.

In closing

Money lender rules in Singapore are strict in order to protect people from overborrowing while encouraging the prudent management of one’s finances. However, if you need funds urgently because of an emergency, Cash Direct has you covered.

We’re a licensed loan company in Singapore providing a variety of personal and business loans since 2010. Begin your loan application on our website and have it approved in as quick as 15 minutes! Need assistance regarding our loan services and more? Don’t hesitate to contact us or visit us at our office.