Borrowing from a Legal Money Lender: What You Need to Know
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Emergencies or financial troubles may require you to find a quick source of cash. You have the option to take out a bank loan, but this comes with the uncertainty of the financer’s approval. Plus, banks impose plenty of requirements, such as a good credit score, minimum income, steady employment, and other paperwork.
What do you do if you cannot meet the bank’s requirements?
But before you approach a moneylender, make sure to consider these things first.
You can obtain any amount if you’re taking out a secured loan. This means pledging an asset as collateral for the loan, such as your car or real estate property. For unsecured loans, the Ministry of Law has imposed limits based on the borrower’s income. The loan caps apply to Singaporean citizens and foreign residents.
For citizens with an annual income of $20,000 or less, the cap is at $3,000. Foreigners, on the other hand, are eligible to $500 loan if they have an annual income of less than $10,000 and they can get $3,000 if they’re earning $10-20,000 a year.
Since the Ministry of Law’s ruling in 2015, moneylenders can only charge a maximum of 4 per cent per month for the value of the borrowed money. This limit applies regardless of your income or whether the loan is secured or not.
If you fail to repay your loan on time, your late interest cannot exceed 4 per cent per month as well.
Your interest fee should be based on your outstanding balance after deducting your prior payments from the principal amount. For example, you took out a loan of $20,000 and have already paid half. The 4 per cent interest will only be applied to the remaining $10,000.
Additionally, the moneylender can only charge late interest for the amount overdue, not the entire outstanding balance. For example, you have a remaining balance of $8,000, with a monthly installment of $2,000. Your moneylender can only apply the late interest on your monthly payment of $2,000.
Legal moneylenders can impose additional fees, such as those for late payment, loan approval and other legal costs. But for all personal loans, the total charge of all additional fees cannot exceed the amount of your loan principal. So, if you took out a loan of $15,000, the combined interest and other fees must be below or equal to that amount.
Some moneylenders may lodge a caveat on your property as part of the terms of your loan. If you default on your payment, the caveat allows the lender to take the repayment from the proceeds of the sale of your property.
This means that the proceeds are used to pay back your loan, so you won’t get anything from your property.
Before signing anything, read the loan contract and evaluate your ability to abide by the terms. Shop around different moneylenders to find the most favourable terms.
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