Getting a Loan in Singapore: a First Time Borrower’s Guide

Borrowing money in Singapore has never been easier. Whether funding a startup or vacation, there are many favourable options available for locals and foreigners alike. You can choose among a bank, moneylender, or even the government.

If you do a quick search on where to get a loan, most offers will come from banks and money lenders. Although banks have been the default option, licensed moneylenders in Singapore are becoming convenient alternatives for borrowers. The typical moneylender has made it possible for Singaporeans to acquire money for their goals and dreams.

If you’re a first-time borrower who wants to sift through the noise online, we’ve got you covered!

What Are Your Options If You Need a Loan?

First, you need to know the difference between an unsecured and secured loan.

A secured loan is a type of loan where the borrower pledges his property as collateral, while an unsecured loan does not involve any collateral. Since the lender does not have any collateral to seize in case of failure to repay, making the transaction riskier, the loan contract involving an unsecured loan will have higher interest than a secured one. The content of this article will deal mainly with unsecured debts.

Besides knowing what secured and unsecured debts are, you can also differentiate loans based on its purpose. Here are the four common types you can expect from banks or moneylenders.

  1. Personal loan or Foreigner loan

A personal loan is one where the money lent is for any personal reason of the borrower. It can be used for vacations, medical expenses, emergencies, and so on. It is also known as a foreigner loan that is available for expatriates.

  1. Payday loan

A payday loan is a short-term loan which requires you to repay the lender when you receive your next paycheck. It is helpful when you had an emergency needing additional funds, which left you with less money for your rent, food, or other everyday expenses.

Some may be confused as to the difference between a payday loan and a personal one. Their main similarity is that they cater to the borrower’s personal needs or wants. However, a personal loan has a longer repayment schedule because the money lent involves a larger amount that your next paycheck won’t probably cover.

  1. Business loan

A business loan is intended to help businesses of any kind or size. Popular types include SME working capital loans, temporary bridging loans, personal loans for startups, and unsecured business loans.

Although the government and banks may have varying requirements, licensed moneylenders typically require the following: the business must be registered in the country, has been operational for at least a year, and has a minimum turnover of $60,000 per year.

  1. Bridging loan

A bridging loan is a short-term debt useful for immediate property purchases. It allows you to buy your next home or real estate while waiting for the sales proceeds of your current one. It is also useful in securing a property during its pre-selling stage or as a form of reservation.

This type of loan offers flexible repayment for property financing because you have to pay everything in full only by the end of the term, i.e. both the principal and interest. It is considered a short-term loan because it usually involves a term of six months for banks. However, you can negotiate for a longer repayment period with a moneylender.

Where Can You Get a Loan?

You can get a loan from various sources in the country. In this article, we will discuss banks and moneylenders in particular.

  1. Banks

Banks are regulated by the Monetary Authority (MAS). Check the Financial Institutions Directory for a list of banks and other finance companies licensed by the MAS.

    • How much can you borrow?

Under the Credit Limit Management Measure, the borrowing limit for unsecured loans is 12x the monthly income of a borrower. This limit includes credit card debt and other unsecured debt facilities.

    • What are the typical interest rates?

Although they vary from bank to bank and other factors involving the borrower, you can expect rates to range from 3.5% to 10.8% per annum. These rates are typically the advertised or annual interest rates (AIR). However, banks must publish their effective interest rates (EIR) under the law, so make sure to give greater weight to this rate. You can read more about the difference between AIR and EIR later in this article.

    • Other fees incurred

When dealing with banks, expect them to charge you various kinds of fees, including but not limited to, processing fees, annual fees, administrative fees, late payment fees, cancellation fees, prepayment fees, and so on. Some banks offer promos to reduce the fees you’ll incur.

  1. Licensed Moneylenders

A quick and easy way to get a loan is through a licensed moneylender, where you can get a loan within hours after submitting an application and relevant requirements. Avoid dealing with loan sharks by checking the Registry of Moneylenders-Ministry of Law for its list of licensed moneylenders.

    • How much can you borrow?

To check the maximum loan amount you can borrow from a licensed moneylender, see the table below.

Borrower’s yearly income Citizens and permanent residents Resident foreigners
Less than $10,000 $3,000 $500
At least $10,000 but less than $3,000 $3,000
At least $20,000 6x monthly income 6x monthly income
    • What are the typical interest rates?

The maximum interest rate that licensed moneylenders may charge is 4%, which is also the maximum for each month the loan is repaid late. The cap applies whether the loan is secured or unsecured and regardless of the borrower’s income.

    • Other fees incurred

Licensed moneylenders, as directed by the Registry of Moneylenders, may only impose the following fees:

      • A fee not exceeding 10% of the principal when your loan is granted (administrative fee or loan approval fee)
      • A fee not exceeding $60 for late repayment per month
      • Legal costs ordered by a court when a moneylender successfully recovers a loan

Loan approval

Factors to Consider Before Applying for a Loan

The most basic rule in borrowing is not to borrow what you can’t pay. With this in mind, you have to take a look at your personal cash flow, budgets, fixed expenses, among others.

There are many factors to account for in deciding between banks or licensed moneylenders. Some of which are the following:

  1. Amount to borrow

Whether from banks or moneylenders, the principal loan amount is pegged on your salary. Although your moneylender can give you up to 6x your monthly salary, ask yourself whether you need that amount. Always remind yourself why you’re seeking a loan in the first place. Of course, besides the principal, take into account the total amount you will borrow, which will include interest payments, fees and charges.

  1. Interest rate

One way to get yourself into financial trouble is to neglect your interest payments. Both banks and licensed moneylenders offer reasonable interest rates regulated by Singaporean law. This is why it’s best to get money from these institutions than unlicensed moneylenders, whose rates can lead you into a debt trap.

Know the difference between the advertised interest rate (AIR) and the effective interest rate (EIR). Using the AIR will result in the simple interest, a lower amount calculated by multiplying the principal amount to the advertised rate. The EIR, on the other hand, reflects the true cost of borrowing because it accounts for fees and the repayment schedule.

If you want to pay lower interest, consider offering collateral since secured debts enjoy reduced rates. A good credit score is vital in dealing with banks, but not for licensed moneylenders. If you’re dealing with a moneylender, which is concerned primarily with your ability to pay, a good credit score may help you renegotiate your interest rate.

  1. Instalment plan

Instalment plans are practical when financing expensive purchases because not many have large sums of money every time. However, be ready to commit to paying these instalment loans, especially those with a longer term. Missing one payment can adversely affect your credit score and will result in late fees and penalties.

  1. Repayment period

Some may prefer to pick a bank or moneylender that offers a longer term because of lower periodic payments. However, this can be more expensive if you consider the true cost of your debt. Furthermore, a longer term can be riskier since there can be times where financial emergencies can leave you with fewer funds than expected.

With moneylenders, expect a shorter repayment period considering the more modest amounts they lend. However, since moneylenders are more lenient, you can negotiate for a more flexible repayment plan.

  1. Other charges and fees

Lastly, when choosing among banks or moneylenders, compare not only the principal and interest but also the fees and charges. Expect more fees from banks, who need to reduce risk as much as possible, than moneylenders.

But also note that licensed moneylenders in Singapore may only collect three kinds of fees, on top of the interest, as provided by the rules of the Registry of Moneylenders.

Eligibility and Requirements

1. Banks

Eligibility:

To be eligible with a bank, a citizen or permanent resident must be aged 21 to 65 and earn an income of at least $20,000-$30,000 per year. On the other hand, foreigners are usually required to have a yearly income of at least $40,000-$60,000.

Requirements:

Although banks vary with their requirements, you must have these documents at the minimum:

For citizens or permanent residents:

    • NRIC
    • Credit history
    • Proof of employment
    • Proof of residence
    • Proof of income

For foreigners:

    • Identity card
    • Proof of employment
    • Proof of residence
    • Proof of income
    • Bank statement (reflecting activity for the past six months)

2. Moneylenders

Eligibility:

You need to be at least 18 years old to qualify for a loan with licensed moneylenders in Singapore. Furthermore, citizens and permanent residents need to have a minimum monthly income of $1500, while foreigners must earn at least $2000 per month.

Requirements:

Besides completing the loan application form of a licensed moneylender, you need to present the following documents:

For citizens or permanent residents:

    • Identity card/NRIC
    • Proof of residence
    • Proof of employment
    • Proof of income
    • SingPass (to log into CPF, HDB, and IRAS website)

For foreigners:

    • Passport
    • Work permit/work pass
    • Proof of residence
    • Proof of employment
    • Proof of income
    • SingPass (to log into IRAS website)

Important Reminders After the Loan Has Been Approved

After securing your money, paying the interest and principal loan amount won’t be the final step. As a borrower, you have to protect yourself against contingencies that may occur. Future events arising from either party can affect the contract, so it’s crucial to be aware of the options available to you.

The reminders below are what you should do when dealing with a licensed moneylender. For banks, you can read this article.

  1. Retain the following for safekeeping and documentation:

Once you have signed the agreement and received the proceeds (principal amount minus administrative/loan approval fee) from your moneylender, you have to abide by its terms, which ultimately revolves around the complete payment of the principal, interest, and other fees.

Make sure that you track and keep the following for safekeeping and documentation:

    • Copy of the loan agreement
    • Receipts issued for every payment
    • Statements of account issued to track outstanding debts and payments made
  1. If you can’t pay the loan, here are your options:

Negotiate with the moneylender
If you cannot pay your debt/s, it is always best to explore non-legal courses of action first as they are the least expensive and stressful. One such option is to negotiate with the moneylender. You can ask for an extension or a refinancing plan. To avoid late payment fees, initiate the negotiation before the next or final due date.

File for bankruptcy
You may also consider filing for bankruptcy if your unpaid debts have totaled at least $15,000. Moneylenders may also file for bankruptcy in your behalf if you have failed negotiations with them and assessed that you wouldn’t be able to pay back in full.

A consequence of filing bankruptcy is that interest will cease to accumulate. Periodic payments will also be lower. Moreover, creditors, such as moneylenders, cannot file lawsuits seeking recovery after a Bankruptcy Order is issued by the High Court.

Debt repayment scheme
If you wish not to opt for bankruptcy, you may also avail for the Debt Repayment Scheme if your total debts do not exceed $150,000. The High Court shall designate an officer of the court (Official Assignee) from the Ministry of Law to manage the debtor’s assets. The goal is to create a debt repayment plan (DRP) to repay all outstanding debts.

Similar to bankruptcy, your moneylenders will be prohibited from filing any legal action to recover your outstanding debts unless the court permits them. The DRP shall safeguard their claims, which must be repaid within five years. This is a great alternative compared to bankruptcy which carries a social stigma.

  1. What if the loan provider harasses, threatens you:

When recovering from borrowers, moneylenders cannot resort to harassment or threats, which is prohibited under the law. You can file a complaint with the Registry of Moneylenders by calling them at 1800-2255-529 or submitting an online complaint through their website.

When filing a complaint, you will be required to provide your contact details and information regarding the moneylender. The authorities may also elicit more information concerning the moneylender by interviewing you.

You may also contact the police at 1800-255-0000.

Closing

Borrowing for the first time may seem to be a daunting task. In determining which institution to choose, consider the requirements you need to satisfy and your financial situation currently and in the future.

At the end of the day, remember that you’re not only paying for the principal, interest, and fees but also shaping your credit score.

If you think that borrowing from a licensed moneylender is the best choice for you, there are dozens of licensed moneylenders in Singapore ready to help you. A1 Credit Pte Ltd is one of them.

Our friendly and knowledgeable advisors will guide you throughout the entire loan application process and ensure that your borrowing is safe and affordable with us. Contact us today!

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