Tricks Moneylenders Use To Charge You More Fees
Late last year, we wrote an article about whether you should consider taking up a loan from a licensed moneylender, given that new rules by the authorities have set a cap to the interest chargeable.
Before the new rules, licensed moneylenders in Singapore can charge between 13 to 20 percent interest on loan amounts, and that’s not including extra fees and charges. This puts borrowers in a vulnerable position as they will need to pay a huge cost of borrowing even when they are in a desperate situation.
The new rules capped interest charges to 4% or less per month and stipulated the limits for other fees, such as upfront administrative charges, late interest fees and late fees.
However in recent months, it has been found that these money-lenders have found a way to circumvent the new rules. Some of them have been found to issue short-term loans of less than a month and splitting up a single loan into smaller multiple loans, resulting in a snowballing of various fees.
While we have emphasised that bank loans are typically cheaper than the ones offered by licensed moneylenders(the latter charges on a monthly basis whereas banks usually use an annual interest rate), we understand that some borrowers may not be eligible for a bank loan. Thus, we’ve compiled some additional guidelines for potential borrowers to look out for when taking up a loan from legal moneylenders:
There are no new laws for a 1-week loan
Authorities found out that some moneylenders misinform borrowers about a “new law” that loans can only granted only on a weekly basis. This is not true and used as a ploy to get borrowers to repeatedly refinance their loans by paying an administrative fee.
Taking into consideration these fees are usually charged at 10%, the monthly interest rate would work out to a hefty 40% per month, almost double the amount before the new guidelines kicked in last year!
There is no need to split up a single loan into multiple smaller ones
taking up a loan comes with other fees and administrative charges besides the interests charges. Taking up multiple loans or splitting them into many instead of one means it increase the peripheral fees payable.
Always remember to read through the fine prints
All licensed moneylenders will be required to provide borrowers with a cautionary statement in writing before any loan can be granted, so do your part to ensure you know the details as well. If you suspect you have been given a loan based on “unreasonable” conditions, do lodge a complaint with the Registry of Moneylenders.
While there are some seeds in the licensed money-lending industry, we must not forget there are bad debts that these moneylenders are not able to recover as well. The nature of the industry is that it is high risk and the profile of borrowers are likely to be lower quality compared to those who are able to get a loan from the bank.
On the borrowers’ end, it is important to access why you need this money and whether you will be able to repay in due time. If there’s a problem with your finances, a longer term solution should be sought instead of snowballing the loans and chalking up a high amount of interest payments. Contact the Credit Counselling Bureau to work out a way to get through your debt crisis instead!