Money works in funny ways. Sometimes, you have more than you need and sometimes you just don’t have enough. While budgeting and financial planning can be tools that can be used to inject financial stability into your life, sometimes, despite your best efforts, you might still fall short of meeting your financial objectives.
Being bereft of money and security is indeed a worrisome situation. During such vulnerable moments, you might end up falling prey to a loan shark, who may be posing as a Licensed moneylender.
However, ask yourself a question. Is easy money always the best solution to a problem? Probably not. The government of Singapore has laid down strict rules for registered moneylenders, for a reason. The government is trying to protect your interest above everything else. If you deal with shady lenders, the consequences may not be good in the long run.
Why Loan Sharks Are Dangerous – An Overview
Loan sharks tend to be good at reading the fears and vulnerabilities in their customers. They may pose as your friend and get you interested by sweet-talking but after your loan application has been approved, they may resort to pressure tactics to realise their money.
Since you may not even have a signed agreement or a proper understanding of the terms of the loan, you won’t even be able to challenge them and tell them –“You’re violating the terms of the agreement.” That is how they operate and get away.
Since loan sharks operate outside the purview of law, they don’t care for scrutiny, accountability, or rules. They often resort to intimidation to get you to submit to their whims.
If you want to know how to differentiate between a loan shark and a Licensed moneylender, read on.
11 Signs That Will Give a Loan Shark Away
1. No written agreement: A registered moneylender will offer you a proper agreement and document all the important terms and conditions. They will explain everything to you and answer your questions. The loan amount, tenure, interest rates, fees, and rules of termination will be clearly mentioned in the loan document.
A loan shark doesn’t care for contracts. They may or may not give you a hard copy. The terms of the loan may not be clearly mentioned. Even if they are, the language may be convoluted. Your attempts to seek explanations and clarifications may meet with stalling.
If you don’t understand the terms of repayment, fees, or interest charges clearly and if the lender refuses to explain them properly or divulge the hidden clauses, you should start looking for another lender. Do not take a loan from a lender who isn’t willing to give you a copy of the loan contract.
2. No limit on borrowing: While this may seem to be an attractive proposition, it’s best not to fall for it. The Ministry of Law has set some ground rules for lending.
If your annual income is less than S$20,000, you can borrow up to S$3,000 from a moneylender. If your yearly income is between S$20,000 and S$30,000, you may get a loan up to your income for 2 months. If your annual income exceeds S$30,000 but is less than S$120,000, you may borrow up to your income for 4 months. There will be no limit on borrowing if your annual income is S$120,000 or above. For secured loans, there is no limit.
If you come across a lender who doesn’t abide by these ground rules and is willing to let you borrow more than these limits and without proper documentation, just head for the door. After all, everything that glitters is not gold!
3. Exorbitantly high interest rates: As per the rules laid down by the Ministry of Law, no moneylender can charge interest rates more than 4% per month, regardless of the nature of the loan or your annual income. To elaborate, a lender can slap a maximum interest rate of 4% per month on you if you fail to repay a loan instalment on time.
There’s more. The method of computation is different from the compounding-interest method that is used by banks. A Licensed moneylender will calculate interest only on the amount of principal that you still owe and not on the original loan amount. Also, interest can only be charged on the instalment due and not on the outstanding balance that is yet to be due.
This means that if the total loan amount is S$20,000 and you fail to repay the first instalment of S$2,000 on time, interest will only be charged on S$2,000 and not the outstanding balance of S$18,000 that is not yet due.
For example, if you’re charged an interest of 4% per month, you’ll be paying an interest of S$80 (=4/100x2,000) plus late fees, if any, at the end of the first month for a missed payment deadline.
If you find that a lender is blatantly disregarding these rules and charging higher interest rates, he/she is probably a loan shark.
4. High fees: A licenced, law-abiding moneylender can only charge you the following fees:
- A late payment fee not exceeding S$60 per month, if applicable.
- A processing fee not exceeding 10% of the loan amount.
- Legal costs borne by the lender for a successful appeal in court for realising the dues.
In addition, the rule also states that the total interest charges and fees levied by the lender can’t exceed the loan amount. That means that if your loan amount is S$20,000, interest charges, administrative fees, late fees, and any other service charges can’t exceed S$20,000.
If you see that your prospective lender levies other fees and charges at his will and is unwilling to explain the nature of these charges, be sure that the lender is not playing by the book. You would do well to steer clear.
5. Unlicensed lending: Want to know if your lender is registered with the Ministry of Law or not? Simply check the register available on the Ministry’s website. You’ll find the full list of lenders whose activities are regulated, authorised, and monitored by the government.
Any lender not on the list is possibly a loan shark at worst and an unlicensed lender at best. Don’t forget to check the registry before you get yourself into a contractual binding with a lender.
6. Asking for personal details: Is your lender asking you to share personal details such as your SingPass ID or password? Do they want to retain your NRIC/passport and other personal identification documents? Chances are high that you have fallen in the trap of a loan shark. Do not agree to part with your identification documents under any circumstance.
7. Approving a loan without doing due diligence: If you think that your lender is too eager to approve your application, you need to be cautious. A lender who approves a loan over SMS, email or phone and doesn’t even verify your application and/or supporting documents, is certainly operating in contravention of the mandated rules. It’s best to stay away from such lenders.
8. Withholding your approved loan in part or full: If your lender is withholding a portion of the loan approved without offering proper reasons, chances are high that you have fallen prey to a loan shark.
A Licensed lender would never withhold funds without a valid reason. As a victim of a money lending fraud, you have every right to approach the Registry of Moneylenders to lodge a formal complaint.
9. Not providing you with a statement of account and receipts of payment: A registered lender is supposed to provide you with a signed receipt everytime you settle an instalment. They are also supposed to issue a statement of account periodically. Since a loan shark doesn’t care for the law, you may receive no such document from a loan shark.
10. Using unauthorised media of advertisement: According to the Ministry of Law rules, a Licensed moneylender can only use the following channels of advertisement:
- Their website.
- Business or consumer directories.
- Advertisements on the inside or the outside of a lender’s business establishment.
No other channel is permitted by law. If you receive marketing communication from a lender through emails, flyers, text messages, or other channels, you should immediately understand that you are dealing with an unlicensed lender or a Licensed lender operating in violation of the laid-down rules. You may even notify the Registry so that appropriate action can be taken.
11. No brick-and-mortar office: Registered moneylenders need to provide an address of operation. You can check their office address, licence number, and other details from the Registry of Moneylenders website.
If you sense that your lender doesn’t have a registered office, you need to be careful because you’re probably dealing with a loan shark. A loan shark/unlicensed moneylender usually operates online. That’s because in case something were to go wrong, they can easily go off the radar.
Want to Complain? Here’s How You Can
If you have fallen prey to unethical and illegal activities of a loan shark, you may lodge a complaint by making a telephone call to the Registry of Moneylenders.
You may have to meet with the officers of the Registry and provide proof of transactions. Any complaint is usually thoroughly investigated. Rest assured knowing that any confidential information that you share with the Registry won’t be revealed to a delinquent lender without your express approval.
Should You Be Dealing With Loan Sharks?
A loan shark cares for nothing but their own vested interests. A registered moneylender will never resort to intimidation and threats even if you fail to repay their dues. They may initiate legal action or take remedial measures permitted by law but they will never resort to illegal collection techniques.
The fact that loan sharks don’t play by the rules, can sometimes be tempting. You can get higher loan amounts, avoid documentation/verification, and get a loan even without the right credentials. However, the downsides are too many to be ignored. One wrong move can take away your peace of mind for good.
When you deal with a loan shark, you can never be sure about the source of funds. If you’re unlucky, you may end up using funds generated by unlawful activities. You may even fall on the wrong side of law. Why take a chance?
A Licensed moneylender will always offer ‘clean’ and ‘untainted’ funds. Isn’t that a safer alternative?
Today, you may be in financial distress. Tomorrow, your situation might improve. But, loan sharks are clever. They design the terms of a loan in a way that even if your financial situation improves, you may still never be able to pay off your loan in full due to high interest rates and arbitrary ‘rules’ imposed on you.
Tell us something. Which of the following seems to be a more sensible option?
- Taking a small loan from an unregistered lender to cover an unexpected cost and getting sucked into a debt trap?
- Taking a loan from a Licensed lender through proper channels, even if it means putting yourself under greater scrutiny, but enjoying greater accountability?
Find the correct answer to this question and you’ll probably find the right lender. Good luck!