Getting a Personal Loan? Ask Your Money Lender These 5 Questions

You frequently hear financial experts warn against borrowing from loan sharks. As much as possible, you want to transact with licensed lenders and avoid ah longs. Legal money lenders offer more reasonable interest rates, show your repayment history and draw contracts that prevent the lender from changing your loan terms at the last minute.

However, even if you’re borrowing from a legal money lender, you still need to be wary about unfavourable conditions, hidden terms and vaguely worded terms in your contract. These things can make it difficult for you to repay the money you borrowed, increasing your total loan expenses over time.

With that, it’s important to learn everything about your lender, even if they are licensed. Below are five questions to ask a legal money lender in Singapore before taking out a personal loan.

1. Is the loan secured or unsecured?

Secured loans require collateral, giving the lender the right to seize your property if you default on the loan. Putting up collateral is a risk on your part, but it lowers your lender’s risk level. As such, secured loans can give you lower interest rates.

Conversely, unsecured loans don’t require any collateral. Since the lender has slim chances of recouping losses, unsecured loans generally have higher interests.

If your priority is to get low interest rates, it’s best to offer collateral for your loan. But what if you can’t afford to put up collateral? Ask your lender if you can have a guarantor instead. A guarantor is an entity or person who’ll shoulder the burden of the loan should you fail to repay the money.

2. What are your interest rates?

Personal loans have varying interest rates, depending on the lender and if you have collateral or not. However, the Ministry of Law imposes a maximum interest rate of 4 per cent per month for money lenders. This cap applies regardless of your income and whether it is secured or not.

Although the interest rate is important, you also need to look at other loan terms, such as the monthly payments. Sometimes, lenders will lower the interest rate but impose various fees and penalties in an effort to increase their profit, which brings us to the third question.

3. Do you have other penalties and service fees?

You have to read the fine print of your loan contract and watch out for hidden terms. Here are some of the clauses you need to look out for:

• Early repayment penalty: This clause demands an extra sum if you want to repay the loan in full before the pre-planned date. Paying off the loan early means the lender loses out on interest rate payments, so they’ll impose an additional fee to make sure they earn from the loan.

• Minimum repayment sum: Most lenders have minimum monthly payments. If you don’t pay the required amount, some lenders charge you with late payment fees. This can increase your debt if you keep failing to meet the minimum monthly payment.

• Admin fees: The admin fee is the upfront processing fee you pay before your loan is approved. According to the Ministry of Law, legal money lenders can charge an admin fee of only 10 per cent of your loan principal.

4. What are your rules and penalties for missed or late payments?

Be wary of late payment penalties. It can be difficult to pay the fee if it’s too expensive, which can cause your debt to snowball. So, if your late payment fee and minimum monthly payments are both high, see if you can renegotiate terms with your lender.

Keep in mind that the Ministry of Law imposes a limit of $60 for each month of late repayment.

5. How flexible are the repayment options?

Lastly, enquire about the flexibility of your repayment options. In case of unexpected financial events, you may want to readjust your repayment terms. Some lenders easily make concessions for their clients. For instance, they can lower your minimum payment sum for a few months until your situation improves, then recoup the amount they lost in other ways.

Ultimately, you want your loan terms to work in your favour. The loan should improve your financial situation, not put you in more debt. Before you sign any contract, make sure you’re working with a licensed money lender who’s honest about their services.

Legal Money Lender in Singapore

Capital Funds Investments is a trusted lender, providing urgent loans with terms that work in your best interest. We tailor our loan programs to your needs, helping you regain control of your financial situation.

Connect with us today to enquire about our personal loans.