You know when banks will lend you money? When you have two houses, earn $15k a month, and have absolutely no need to borrow money. The less you need to borrow money, the more they want to lend it to you. It’s like some sick financial joke. It’s also why some Singaporeans are now turning to licensed Money Lenders. But are they a viable alternative, or just loan sharks with better manners? And are they really more relaxed than banks? I asked around:
Licensed Money Lenders in Singapore
In Singapore, money lenders are licensed by the Registrar of Money Lenders.
The license places restrictions on the amount they can lend, the fees they can charge, and the acceptable interest rate. It also means they’ve passed a money lender’s test. But does it mean no pig’s heads and vandalism?
I asked a money lender, who only wants to be identified as Chaw:
“Moves to form a licensed or accredited debt collection agency are underway.
Money lenders are businessmen. It’s in our best interest to build a good reputation. We don’t want to scare away potential clients, or be arrested by the police. If a money lender must chase down debtors, it’s mainly in the form of reminder letters. It’s no different from the legal methods employed by banks.”
And there ends the similarities. Beyond debt collection, banks and money lenders seem to operate on different levels altogether. Some key differences include:
- Focus on Smaller Loans
- Higher Interest
- Forgiving Credit Assessment
1. Focus on Smaller Loans
I contacted six different money lenders, all of whom were emphatic on small loans only.
One of the agencies offered me a maximum loan of $1,500, despite my income exceeding $30,000 a year. I felt like a 12 year old begging for an advance on my allowance.
“The legal restriction is two to four times your monthly income, depending on how much you earn” Chaw says, “However, most money lenders will not lend you the full sum.
For most of us, our customers are people who need payday loans, small amounts to tide them over. We cannot bear the risk of someone’s $10,000 renovation.”
That makes money lenders ideal for small, urgent fees. Stuff like getting your car fixed, paying a clinic, or paying for a budget plane ticket. Moneylenders are not an alternative for large business or renovation loans; you can drop that idea right now.
Most of the money lenders I contacted were fast. They offered to approve the loan within 30 minutes, provided I could produce all the documents.
Chaw feels this is because most money lenders are small, and hence flexible, companies. There are fewer bureaucratic layers than a bank, and the loan amounts are not big. He adds that:
“This is one way we can help clients that banks can’t. If you need the money right now, in order to avoid legal complications, or you need the money for medical reasons, the bank might be too slow.
If you don’t qualify for a credit card, money lenders are your only alternative for fast cash.”
Eh, I don’t fully agree with that last statement. Pawn shops are just as quick, and don’t even require the documents to prove your income. But money lenders are your last resort for fast, unsecured loans.
3. Higher Interest
Most money lenders won’t tell you their interest rate over the phone or e-mail. One of the companies contacted said they are, “by law”, required to discuss this only face-to-face.
I don’t know if that really is the law (if you’re a lawyer, let me know!) But if it is, it’s a happy coincidence for money lenders. Because there’s no way to instantly compare all their interest rates, borrowers can’t just zero in on the cheapest ones.
Hey, who was their target market again?
Oh yeah: People who need urgent loans. Exactly the people who don’t have time to shop around for the lowest rates.
Fortunately, Singapore has a finance blogger who prefers checking these things to having a social life.
Most of the money lenders I approached offered me interest rates of 25% to 30%. There seems to be no reason why you’d get 30% instead of 25%, and it all seems more arbitrary than the line-up of an S-League team. But one thing’s for sure: Credit cards are cheaper than licensed money lenders.
So try your best to get plastic before going to a money lender. (Surf around sites like SmartCredit.sg if you’re having trouble finding one).
4. Forgiving Credit Assessment
Late credit card payments? Your credit rating slipped to a B. Got a warning letter? Now it’s a C. Credit rating is hard to improve, and banks are obsessive about it. If the rating’s too low, they’ll flat out reject your loan application.
“Money lenders are less fussy about your credit score,” Chaw says, “because the amount we lend is comparatively small. If you have bad credit and can’t get a personal loan, we are here for you.
But I should mention that there are limits. If you have outstanding loans from other money lenders, or you have significant credit card debt, we also may deny your loan. We are more forgiving, but it is not true that money lenders won’t do background checks.”
Chaw mentions that, with regard to former bankrupts, many money lenders will give them credit if they can produce the letter of discharge. This is different from banks, which require an additional five to seven years after the letter of discharge before extending credit.
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