Have you ever thought of taking the risk of borrowing money from unlicensed lenders or loan sharks, as they are commonly called? If yes, it will do you good to abandon that thought because even if you get temporary relief from your financial woes, it might exacerbate your financial stress in the future and here’s why. Unauthorised lending has become a social menace in Singapore with frequent reports of unlicensed moneylenders being sentenced to jail. For instance, in 2017, Low Buay Huat was caught carrying out an unlicensed money lending business with his partner and was sent to jail for 33 months along with being slapped with a fine of S$400,000. He had carried out his unlicensed business for 2 years and charged interest up to 28%. There are many such instances that show how expensive and dangerous it could be to get involved with an unauthorised lender.
Singapore has implemented the Moneylenders Act in 2010 which has made it illegal for anyone to lend money without a license. So by borrowing money from an unauthorised lender, you are automatically getting into an illegal activity that may prove costly in the future. Read on to know more about why you should avoid unauthorised money lenders.
Related Read: List of Top 10 Licensed Money Lenders in Singapore
It is Prohibited to Borrow Money from Unauthorised Lenders
According to the Moneylenders Act of Singapore that was enforced in 2010, unlicensed lending is a criminal activity. This act has been stringently enforced and anyone who is caught in the unauthorised lending business will be dealt with severely by law enforcement agencies. To discourage people from operating in this business at various levels, anyone who facilitates loan sharks are prosecuted.
You will be Harassed by the Lender
If you borrow money from unauthorised lenders and eventually delay the repayment by even a day, you can expect much more than a few phone calls. The constant harassment will definitely take away your peace of mind and you will find it difficult to carry out your daily activities. However, even if you repay a small amount, don’t think that you will get relief as they will soon start pestering you for the rest of the money. In 2009, over 15,000 cases of harassment related to unlicensed moneylenders was recorded by the police force and after several initiatives over the years, there has been a significant drop in the same. However, this doesn’t mean that such harrassments don’t occur anymore, it is that the law enforcement agencies are working really hard to reduce the number and educating the masses regarding dealing with them.
You Might be Forced to Join an Illegal Activity
There is a chance that unauthorised money lenders may force you to join an illegal activity in return for the failure to pay the money back. This is the most dangerous aspect of taking help from an unauthorised lender. However, the law enforcement agencies are quite alert in Singapore, but you must be careful and must ensure that things do not get out of hand.
Your Personal Details Might Get Compromised
Licensed money lenders do not ask for your personal details as they have other means to verify that information, but unauthorised lenders will coax you to give your personal details that are not at all necessary. They do this to make sure that they can get in touch with you for any other deals in the future or leverage that information if things go south.
You will be Spammed with Phone Calls and Text Messages
You will not find any licensed moneylender sending ads through text messages or carrying out telemarketing campaigns to entice customers as it is illegal to do so. However, unauthorised lenders take this route to lure customers. If you are facing this problem, you can complain to the authorities as this is a major violation of the money lenders act.
You May Never be Able to Pay Your Loan Back
Unlicensed moneylenders charge an exorbitant rate of interest and you might never be able to completely escape from the debt. As seen from Mr Huat’s unlicensed money lending business, he charged a rate of up to 28% on the loans he offered. Licensed moneylenders, on the other hand, cannot charge more than 4% per month as per law. In addition to the high rate of interest, unauthorised lenders may also charge additional fees. Often, in such cases people struggle even to pay back the principal amount. With authorised lenders who have a valid license, you will not face these issues as there is a cap how much additional fees they can charge you.
Unauthorised Lenders Lure You into Borrowing Large Amounts
To ensure they can extort as much money from you as they can, unlicensed moneylenders entice you into borrowing a large sum. They do this as larger the sum, the more they earn as interest. Eventually, you will end up borrowing an amount that you will not be able to repay. You might even end up borrowing more to repay the initial debt incurred. This will only trap you into a vicious debt cycle you may not be able to overcome.
Unauthorised Lenders Avoid Making Terms of Contract
It is a legal requirement to have proper terms of contract when lending money, but most unauthorised lenders avoid it and prefer to have an oral agreement. If you take a loan from a lender without any agreement (soft or hard copy) or without any witnesses, the lenders will use it against you in the future. Also, oral agreements are not valid in Singapore for lending money. Such manner of lending will also give them the leeway to change or revise the terms of agreement to benefit their end.
Unauthorised Lenders will Avoid Mentioning any Caveats
Since unauthorised lenders do not encourage you to have an agreement, they will avoid telling you about any caveats associated with the loan. This will make it next to impossible for you to verify nature of the terms if it crops up during the tenure of your loan. Under such circumstances, you will have no choice but to comply with any caveats the moneylender throws your way. Avoid getting into a situation where you are compelled to take the help of unauthorised lenders. However, if you are in a desperate situation, you will have still have other options to borrow money. Unauthorised lenders will try to make you feel that if you do not take the loan from them your financial woes will not go away. But, you must invest your time to find out other ways of borrowing money. If in dire need, consider a debt consolidation plan that charges a lower interest rate when compared to other loans or even a Debt Management Programme (DMP) offered by Credit Counselling Singapore.