When you are in a financial pinch and urgently need cash for an emergency, moneylenders are often your best choice, due to their accessibility and the strict protections by the Ministry of Law (MinLaw).
While we no longer worry about loan sharking behaviour, there are still some risks that we think that you should consider. To shed light on the topic, we’ll delve into the benefits and risks of using moneylenders in Singapore
Larger lenders, such as banks, typically follow structured lending processes governed by multiple layers of rigorous standards and operating procedures. This may make it difficult for certain borrowers, who do not fulfil the bank’s requirements in terms of income, creditworthiness or the like.
Moneylenders on the other hand, are usually SME type establishments who typically have less complex hierarchical and organisational structures. They are therefore at liberty to make more flexible decisions as to who to lend their funds to, as well as the terms and conditions of the contract. This includes borrowers with less than stellar credit ratings or those who don’t meet stringent income standards.
Moneylenders usually maintain websites where you will be able to apply for loans in a convenient manner. While processing periods differ from one moneylender to another, they generally do not take more than one to two business days, depending on the loan type, to obtain a response. Upon approval, a face to face meeting usually follows, where you will need to sign a contract. Disbursement is often carried out on the spot.
The relatively quicker processing time is, again, due to the fact that moneylenders do not have complex hierarchies and systems like banks. This feature makes moneylender loans highly convenient, especially in emergencies where funds are required urgently.
In general, moneylenders have more flexibility when offering you loan terms and conditions. This allows you the space to negotiate for more favourable terms, such as repayment tenors and interest rates. Moneylenders have more freedom to accommodate your unique needs, and can therefore tailor their conditions to meet you at a repayment level that you are comfortable with and can afford.
This aspect will be a positive advantage for borrowers who may not currently have a large and stable flow of income, but need the funds to cover an unexpected cost or ensure the continuity of a business venture.
Moneylenders offer loans to a wider range of income earners, including those within the low income group earning less than S$20,000 a year. Banks may have stricter minimum income requirements when it comes to personal financing, usually about $20,000 per annum for Singaporeans and PRs, and about $40,000 for foreigners.
However, moneylenders are able to accommodate those who earn less than this amount per year, making it an accessible option for lower income earners who may need these funds for unforeseen circumstances or to make certain improvements to their lives. Some of them are even able to offer a small loan to home makers.
Moneylender interest rates are heavily regulated by the Ministry of Law, and they are capped at 4% per month. This is usually charged on your outstanding unpaid balance, so it will not add up to 48% per annum. However, the interest rate is relatively higher compared to banks, which charge about 6%-8% per annum on personal loans. When calculated in the long term, you will have to determine if you can afford to pay the rate charged by moneylenders, though moneylenders usually offer short repayment tenors.
When taking on loans, you will also have to ensure that you do not fall into the cycle of debt, whereby you borrow from one lender to pay another in an endless spiral.
Moneylenders may not rely as heavily as banks on your credit score or credit record when determining loan approvals (although these reports still play a part). Therefore, it is important for you to take responsibility for your own lending habits and not use the system irresponsibly.
Comparing loans and searching for the right moneylender takes time and effort. With a platform like Lendingpot, you can obtain several loan offers in a short period, with just one application. Sign up today with your Singpass Myinfo account and start comparing loan offers from both banks and moneylenders.
Find terms and conditions suited to your needs, and deal directly with the lender that appeals most to you. Our trustworthy platform offers you multiple types of personal financing that meet your various needs in an efficient and effective way.
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