Pawn Shops and Licenced Moneylenders – Which One Offers Better Value?

Some say that the real banks for the poor in Singapore are still pawnshops and moneylenders. Years of experience mean that they usually understand the needs of their customers very well.

In fact, most may not disagree with our assertion that due to their personalised attention, even those outside the formal economy find it easy to deal with them.

However, this article is not about the formal economy versus the informal or the regulated sectors versus the unregulated. It is about pawn shops and moneylenders. Due to lack of awareness, many don’t understand the distinction between a pawnbroker and a licenced moneylender. Our aim is to help you understand the similarities and the differences between the two better.

Without further ado, let’s dive right into the discussion.

Are There Similarities Between a Pawnbroker and a Licenced Moneylender? What Are They?

To start off, let’s focus on the similarities. Unlike before when these businesses were largely unregulated, most pawnbrokers and moneylenders today abide by the Ministry of Law regulations. A quick glance into the Registry of Pawnbrokers’ website or the Registry of Moneylenders website will give you an overview of the current state of affairs pertaining to pawn shops and moneylenders.

Not only will you get to learn more about the current rules in circulation, but you’ll also get to view the full list of regulated pawnbrokers and licenced moneylenders in the country. If you’re wondering why you should care about these lists, here’s the answer.

The government has created a number of rules to protect the interest of small retail borrowers such as yourself. Entities, named on either of the two lists, have to abide by these laws. Hence, by reposing your faith on such lenders, you may be able to save yourself from falling prey to rapacious loan sharks.

What Are the Common Rules That Pawnbrokers and Moneylenders Have to Abide by?

If you do a comparison between the Pawnbrokers Act 2015 and the Moneylenders Act, you might find quite a few similarities. Here are some specimens:

Turnaround Time

Both the type of lenders generally offer a fast turnaround. That means, the loan funds can be disbursed on the same day, in a matter of minutes (or hours). Also, neither a moneylender, nor a pawnbroker may bother too much about your credit history. While a moneylender may ask for income documents (unsecured loans) for determining the loan quantum, a pawnbroker will generally focus on the value of the asset pawned.

Cap on Interest Rate

There’s a cap on the interest rate that a lender and a pawnbroker can charge. While it is 4% per month in case of a licenced moneylender, it is 1.5% per month in case of a pawnbroker.

Formal Contract Mandatory

A lender is supposed to offer you a formal, written contract. A pawnbroker is supposed to give you a pawn ticket with details such as a description about the items pawned, their weight, and their valuation. Some of the other details include the redemption period, the date of expiry, the date of pawning, and details about the pawner and the sureties, where applicable. Failing to honour the contents of the contract drawn by a lender or a pawnbroker can lead to legal action.

No Fees Outside the Ones Permitted

Both the Acts also proscribe the lenders from charging fees other than the ones permitted by law. Some of the commonly permitted fees include processing fees, late fees, and legal fees, if any.

Punishment Against Inducement and Harassment

Both the Acts categorically state that any form of harassment or violence against the borrower or any form of chicanery or inducement will be punished.

In case a moneylender is found guilty of misleading a customer, he/she shall be liable to pay a fine of S$10,000 at least and S$100,000 at most. In case of dereliction of obligations, a pawnbroker could face a maximum financial penalty of S$20,000 for every single event and a cumulative maximum of S$100,000 at a time. If your moneylender is involved in unfair or unethical practices, you could also call the Registry’s helpline. You could also lodge a complaint with the Small Claims Tribunal or the Court under the Consumer Protection (Fair Trading) Act.

Beware that if you’re detected of wrongful pawning of an item that doesn’t belong to you, you could be liable for a fine of up to S$20,000, an imprisonment for a year, or both. The government has made provisions to punish and prevent frauds of any kind, be it from the borrower’s side or the lender’s side.

Valid Licences Required

Both moneylenders and pawnbrokers can operate legally in the country if and only if they carry valid business license. The licence will have to be renewed from time to time and before expiry. Also, the lenders may have to seek waivers and directions from the authorities concerned to carry on their businesses.

Fulfilment of Other Prerequisites

Anyone wishing to start a licenced moneylending business must first clear a test, make a security deposit for a place of business, and also pay a registration fee. You’ll also have to satisfy a host of criteria. The process is not too different for pawnbrokers. A prospective pawnbroker must satisfy certain prerequisites, obtain a valid registration number, arrange for and maintain a paid-up share capital, operate out of an incorporated place of business and comply by the rules stated in the Pawnbrokers Act 2015.

So far, both pawnbroking and moneylending seem to be quite similar, right? But, there are differences. Let us now focus our attention on some of the most visible and pertinent ones.

What Are the Major Differences Between a Moneylender and a Pawnbroker?

The first difference that you would probably notice is in the type of loan issued. While a pawnbroker strictly deals in secured debts, a moneylender could be issuing both secured and unsecured loans, depending on their business model and policies.

The next thing that might strike you is the difference in interest rates. Pawnbroker’s have a security from you that you could forfeit if you fail to pay back the loan.

While the maximum rate of interest chargeable on a loan offered by a pawnbroker could go up to 1.5% per month or 18% p.a., the maximum rate chargeable on a loan offered by licenced moneylender could go up to 4% per month. That translates to a steep 48% p.a. This rate may apply to both secured and unsecured loans.

Let us now look at some of the other important differences:

Type of Repayment

Loans offered by a regulated lender will usually be instalment loans. That means that payments will be structured in nature. It’s also possible that most lenders won’t allow partial prepayment. You’ll either have to make a full redemption before the maturity of the loan or make fixed payments every month until you clear the dues.

According to information available on the Singapore Pawnbrokers’ Association website, you could enjoy up to 4 different repayment options:

  • Full redemption: This is a method under which you’ll have to clear the dues in full. That would include paying off the principal and interest charges, whatsoever.
  • Partial redemption: Under this arrangement, you can pay off a part of the principal and interest due. The remaining balance remains unpaid. Once you make a partial payment, the remaining loan balance and the value of other pawn articles, if any, will be considered as the new pledge.
  • Renewal: This is an arrangement under which you can simply repay the interest accrued. If you do so, you can extend the redemption period (which is usually of 6 months) by another 6 months. This doesn’t involve physical withdrawal of the item(s) pawned.
  • Partial renewal: This could be of two types. Under the first type, you could pay off the interest due and a part of the pawn amount. This way, you can extend the repayment period and also reduce what you owe. Under the second type, you could ask for an extension of the repayment period and also an increase in the pawn amount. You’ll have to pay the interest due on the principal amount. However, you’ll be granted an increase in the loan balance if and only if the initial pawn amount was lower than the assessed value of the pawn.

Loan Amount

Most moneylenders have a fixed borrowing limit for the different types of unsecured loans offered by them. Cashmart, for example, offers between S$500 and S$15,000 on a payday loan, between S$5,000 and S$50,000 on a personal loan, and between S$10,000 and S$300,000 on business loans.  

If you pawn a valuable asset, you could get anywhere between 60% and 80% of the value of the pledged asset (for some items). For other items, it could be the second-hand resale value of the item. Ultimately, the value could be decided by the appraiser’s discretion.

Method of Redemption

The only way to redeem a loan taken from a licenced moneylender could be to pay off the loan in full. The more time you take in doing so, the higher could be your interest payments and associated charges.

Pawnbrokers need to mandatorily give you a pawn ticket. At the time of redemption, you’ll have to be present at the store with the pawn ticket and a valid ID proof. After you have settled the dues, you can take back possession of your pledge.

Failure to Settle the Dues

In the event of failure to settle dues on a loan taken from a licenced moneylender, you could get embroiled in legal proceedings. The lender can not only pursue the legal route of loan settlement but also charge you the legal fees that they might have incurred in trying to recover the loan dues.

In case of failure to redeem a pawn within the redemption period (a minimum of 6 months), the lender will serve you a legal notice. If you fail to redeem the pawned articles within 1 month of receiving the notice, you’ll have to forfeit the right to ownership of these items. Thereafter, the item will become the lender’s absolute property. The loan is deemed to be fully settled.

Note here that the auction process, which was in practice earlier, has been replaced by the method of forfeiture. Read this article to know why the provision of auction was done away under the new Pawnbrokers Act 2015.

Right to Seize and Detain

In general, moneylenders don’t have the power to seize items or detain you in case they sense foul play. They can, however, resort to legal actions to realise unpaid dues, or take possession of a pledged asset. They can’t, however, act independently without the backing of a competent court.

However, if your pawnbroker realises that you’re trying to pawn an item that is stolen, counterfeit, or fake, they can detain you and seize the pawned item as well as the pawn ticket. They can then transfer you to police custody.

When Should You Approach a Moneylender and When Should You Contact a Pawn Shop?

Since moneylender rates are relatively high, you should approach a licenced lender only if you’re confident of managing the payments. The positives are that you’ll enjoy a fixed repayment in general. It could really help you regularise your cash flow and draw up a budget.

A pawnbroker could be a better option if you have a valuable asset on you. This could help you enjoy lower interest rates. But, be warned. If you have the slightest doubt in your mind that you may not be able to clear the dues within the redemption period, you may want to look for other options. After all, losing possession of a valuable heirloom or asset for a few hundred dollars may not be worth it, isn’t it?

You would have realised by now that both have their unique advantages. To make sure that you always make the right choice, let circumstances make the choice for you instead of your predilection.

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