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Complete Guide to Licensed Moneylenders in Singapore in 2016

We are counting down to the last weeks of 2016, and like every industry out there, it’s always good to do a recap on what has happened in this past year so as to keep everyone on the same page. On the new rules and regulations reminder on some of the pointers to look out for when borrowing from licensed moneylenders in Singapore.

The launch of Singapore Moneylender Credit Bureau in March 2016

This is one of the most important development for the year because finally, all the licensed moneylenders in Singapore would have access to a borrower’s past and current borrowing history. This is especially useful in identifying errant borrowers who are likely to default on their loans.

Most Licensed moneylender benefit from this new act, as they can now tap onto the information by the Moneylenders Credit Bureau to affirm their loan assessment.

This will curb excessive borrowing and “help debtors to keep their loan commitments at a more manageable level”, DP Info said.

“We’ll be able to know how much a borrower has borrowed from other moneylenders, so that we won’t over-extend the loan,” said Mr Peter Tan, vice-president of the Moneylender’s Association of Singapore.

We will be able to see the overall effect of this later when after we do a cover on the 4% interest rate cap.

Teenagers are Increasingly Being Lured to Take Part in Loansharking Activities in June 2016

Compared to the same period last year, there is an 600% increase of youth loanshark runners. This is due to several reasons such as new method of recruiting via social media. These advertisements are usually very vague on the job scope but promises high returns for a small amount of work.

After luring students in, they will then try to entice them to do the job by offering huge amount of cash.

This showed that while the licensed money lending industry is controlled by the government, the government still didn’t manage to completely weed out unlicensed moneylenders in Singapore.

Implementation of 4% Interest Rate Cap for Licensed Moneylenders in Singapore (July 2016)

July is the start of the gradual implementation of 4% interest rate for licensed moneylenders in Singapore.

Before this rule was implemented, there was no interest rate cap for borrowers earning more than $30,000 annually. This led to exorbitant interest rate of as high as 1000% per year by some erratic moneylenders.

With the new measures kicking in, licensed moneylenders in Singapore will be restricted to maximum rates. This include the new ruling that they cannot charge interest of more than 4 per cent per month plus this has to be on a reducing balance basis.

Should a borrower be late in his repayments, licensed moneylender can then charge a late interest, however this late interest must not exceed more than 4 per cent.

The limit extends to charges on late payments: A similar maximum interest rate of 4 per cent a month, while late fees will not exceed S$60 a month.

The total borrowing cost will be capped at 100 per cent of the original loan to keep debts from spiraling. Additional fees for, say, early loan redemption or unsuccessful GIRO deductions will not be allowed.

This has caused some repercussion within the industry, which we will see in the last pointer.

Reduced Debtor Loans Due to Cap on Interest Rate

Blessed Grace Social Service, an organisation that helps debtors to negotiate their borrowing deals, said that there has been a reduction in loan amounts since the introduction of the 4% cap — from $3-5k to about $1.5k on average.

The number of moneylender that one debtors owe also reduced from 10-15 to about 5-8.

This also led the moneylending industry to be more careful as they are more likely to make loses due to defaults because of the lower interest rate. Hence, some licensed moneylender in Singapore isn’t willing to lend to new customers due to the higher risk.

Johnny (not real name), a director of a licensed moneylending firm, said “I believe the loan sharks are benefiting from this because (for) the licensed moneylenders, nobody wants to give out loans to new customers,” he said.

To sum it off, 2016 has been a year of change, due to the implementation of new rules and regulations. Most of it has been set in place to help control debtor’s borrowing amount and borrowing ability.

But the restriction might have also start pushing some borrowers back to loan sharks and unlicensed moneylenders. So how do we find a balance between all of these in 2017? It will be something for the government to ponder on.