The moneylending scene in Singapore has been fraught with cases of fraud and cheating, with moneylenders charging unsuspecting customers heavy fees and interest rates on late loan repayments, or due to some obscure clause in the loan contract that the borrower was unaware of.
The Ministry of Law has made several rules and regulations to monitor the activities of Singapore’s moneylenders, but these always needed to enforced hard in some way or the other before they could be effective. As such, the Ministry creates new guidelines to stop exorbitant interest rates and fees charged on loans by moneylenders.
As of October 2015, these rules have been applicable to all licensed moneylenders in Singapore, but it would seem that many people still aren’t aware of this.
Who Are the Guidelines Applicable to?
- These guidelines are made to help you if you take unsecured personal loans
- Individuals who were granted loan before the guidelines came into effect are not covered by these guidelines. However, they can get revised interest rates on their loans (for those who borrowed between June and September of 2015)
- Businesses that were registered two years (or more) before the new guidelines came into effect (and have been granted loans, secured and unsecured), are not covered by the new guidelines.
What Are The New Guidelines?
- For those of you borrowing money who earn an annual income of less than S$30,000, your interest rate is calculated using the Normal Interest Rate, which charges you a maximum 4% interest rate per month. Before the guiltless were enforced, you would have been charged anywhere between 20% – 40% interest, using the Effective Interest Rate to calculate your interest.
- Before the guidelines were put in place, interest was calculated on a compound basis. Now, licensed moneylenders are required to calculate interest on a reducing balance basis: moneylenders are to calculate an interest of 4% or less on the remaining balance of every monthly repayment.
- After the loan has been granted, the moneylender can only charge you a fee of not more than 10% of the principal loan amount as an administrative fee.
- Moneylenders cannot charge you more than S$60 per month every time you make late repayments on your loan.
- The interest rate on late repayments is capped at 4% per month, whether it is a secured or unsecured loan. This interest can only be charged to the amount that wasn’t paid, or was paid late: it cannot be charged to payments that you have made.
- The total cost of borrowing, which includes administrative fees, interest rate charges, and late repayment fees, are not to exceed your total principal loan amount.
Will These Guidelines Cost You More On Loans?
No, they will not. These new guidelines are actually in place to make sure you are charged less on taking loans from moneylenders. By curbing the high interest rates and fees that moneylenders would normally charge, taking loans from them now costs you much less than it did before.