When you have a pressing financial need, and you have no immediate way to address that need, you can always take a loan. Taking loans in Singapore is usually viewed as very easy or very difficult, but it all depends on what factors have forced you to take a loan, the lending institution you decide to borrow from, the terms of the contract of that loan, and the interests rates.
Moneylending is a legitimate part of Singapore’s consumer credit market, and licensed money lenders can provide loans to you if you need them. Rules have been put in place to monitor the activity of moneylenders, ensuring that they do not over charge customers on interest rates or applicable fees on loans. Though moneylenders make up a small percentage of the credit market in Singapore, they have been known to bind customers in unfair contracts and charge high interest rates on loans.
The Singapore government has cracked down hard on moneylenders, and though the rules are less strict than they were some years ago, they are still in place to ensure that money lenders conduct fair business with their customers, and you, the person taking the loan, don’t get over charged on it.
Interest Rates of Moneylenders
First of all, you need to understand that there are two types of loans: secured loans and unsecured loans.
- Secured loans are those which you get after putting up collateral, such as your car title, your house title, etc.
- Unsecured loans are those that you get without putting up collateral but on the basis of your credit score. A good credit score will vouch for your ability to pay back the loan, while a bad credit score will discourage the moneylenders from approving your loan request.
Moneylenders in Singapore, as of 2015, have been mandated to calculate and share with you, the customer, the Effective Interest Rate of the loan you want to take before they give it to you. Effective Interest Rate (EIR) is computed by considering the total effect of frequent loan payments in a period of one year. The EIR is an interest system that best reflects the true cost of taking a loan in a one-year period.
With this in mind, for loans that had been contracted between June 2012 and September 2015,
- If you earn an annual salary of less than S$30,000, you can be charged a 13% EIR for secured loans
- If you earn an annual salary of less than S$30,000, you can be charged a 20% EIR for unsecured loans.
- As of October 2015, however, moneylenders are required to cap their interest rates at 4% a month, irrespective of the customers’ annual income, and irrespective of whether the loan is secured or unsecured.
- If you default in repaying your loan, the maximum interest rate that moneylenders can charge you is 4% a month.
The Interest you incur on late repayments is only applicable to the amount you haven’t paid. If you skipped paying for a month, the interest for late payments is charged on the month you skipped.