Will New Singapore Money Lending Guidelines Cost You More On Loans?
If you are seeking unsecured personal loans from licensed money lenders, check the new Singapore money lending guidelines regarding fees and interest rates.
Despite previous regulations created to protect individual borrowers, many licensed moneylenders charged their customers excessive interest on loans and late payments. In a bid to clamp down on unscrupulous private lenders, the Ministry of Law (MLaw) came up with new guidelines with caps on borrowing limits, interest rates and fees.
Although these rules have been in effect from 1st October, 2015, most prospective borrowers are still unware of these beneficial changes.
Customers eligible for new caps and rates
These restrictions basically work for unsecured personal loans offered to individuals.
- Older loans to individuals will not come under new rule, but you can get benefit of revised rates on any loan granted on/after the proposed date.
- Businesses registered two or more years before grant of secured or unsecured loan are not subject to new caps.
What are these approved checks on money lenders?
The 7 key requirements are meant to protect distressed and desperate borrowers from prohibitive cost of securing a loan:
1. Prior to this, lenders used Effective Interest Rate (EIR) to calculate interest for borrowers with annual income less than S$30,000. Others seeking personal loans were charged anything from 20% to 40% interest. This has been changed to Nominal Interest Rate (NIR) of 4% or less per month for such short term loans.
2. Interest was earlier calculated on compounded basis. With the new cap in place, Singapore licensed moneylenders can only charge interest on reducing balance basis. For e.g. You borrow S$2,000 and agree to repay in monthly instalments of S$400 each. Lender has to calculate 4% or less interest per month on the remaining balance after every repayment.
3. The money lender can charge an administrative fee limited to 10% of principal amount. Using the above example, you pay S$200 as an admin fee.
4. Previous moneylender practices included charging fees for various reasons like early repayment of loan, unsuccessful GIRO deductions, dishonoured cheques, changes in loan contracts and legal fees. Under new rules, licensed lenders cannot charge any extra fees, except for legal expenses incurred for recovering money owed.
5. Licensed finance companies that charge you high late payment fees on installments have to be careful now. As per the latest directive, late payment fees cannot be more than S$60 per calendar month. Which means to say that on the 1st of every month, you will face a late fee if you are late. It is important to take note that this late fee snowballs if it remains unpaid in full.
6. Under old rules, there was no limit on interest charge on late payment. It was often calculated on the entire principal amount. Things are a bit different now. You pay 4% or lower amount as late payment interest on your unsecured loan. In the original example, if you fail to pay first two installments of S$800 on time, lender can charge late interest of 4% or less on this delayed payment. Interest is not applicable on balance amount of S$1,200 which is not yet due.
7. The total borrowing costs including late fees, admin fees and interest charges should not be more than your principal amount. If you’ve borrowed S$2,000, then total fees and interest charges should add up to S$2,000 or lower amount.
You will definitely see a reduction in overall borrowing costs. But this benefit is negated when you’re opt for weekly rather than monthly contracts. You may end up paying 300% more interest for the same loan amount.
Have you negotiated rates with your Singapore moneylender under new regulations?