Personal Loan in Singapore

Introduction

A personal loan is a credit facility advanced to an individual either by a bank or a licensed money lender of a given country. The loan is meant to assist one to deal with unexpected financial situations such as; medical bills, utility bills, unexpected car repairs, school fees, unexpected travel expenses, boost business cash flow and so forth. In other words, a personal loan is a consumer loan advanced to an individual for personal use. The loan is unsecured, meaning no collateral is required to access the loan.

Personal Loan in Singapore

There are a lot of opportunities in Singapore for both Citizens and Foreigners. The easiest way to take advantage of such opportunities is by way of a personal loan facility. The facility can be accessed either through the bank or Licensed Money Lenders as discussed below.

Personal Loan Providers in Singapore

Banks

All banks in Singapore are regulated by the Monetary Authority of Singapore (MAS) which is Singapore’s Central Bank. Financial institutions in Singapore are universal, as they offer both financial and non-financial services such as; lending, deposit taking, cheque services, investment, insurance brokerage, capital and money market, and financial advisory. In the year 2001, the Government of Singapore liberalized the banking sector by offering foreign banks more liberty to operate. This move has made Singapore’s banking sector very competitive globally. The county has more than two hundred banks top ten being: Development Bank, Post Office Savings Bank, United Overseas Bank, OCBC Bank, Standard Chartered Bank, Citibank, HSBC, State Bank of India, Barclays bank and the Bank of China

Licensed Money Lenders

Singapore’s licensed money lenders are not credit sharks as most people think. They are legal money lending institutions registered with the ministry of law (MinLaw) and they follow strict rules and regulations on the amount to be advanced to the customer and the rate to be charged. Unlike banks, their loans are unsecured which means no collateral is required.

A licensed money lender is expected to have a physical address and a landline but not a mobile phone. They are also not allowed to solicit for business or use misleading terms such as “instant cash” “immediate approval” or “instant approval”.

Interest Rates and Terms

Banks

Banks differ in their payment plan, interest rates, and the qualifying amounts. But, there are common requirements that one has to meet before accessing a personal loan from the bank. They include the following:

  • You must be a Singapore citizen or a permanent resident
  • You must be having annual earnings of not less than $20,000
  • You must provide the latest payslips and 6 months bank statements
  • Minimum age of 21 years
Licensed Money Lenders

Due to the lack of collateral, loans advanced by licensed money lenders are riskier than bank loans. This has seen the loan interest rates from licensed moneylenders being capped at 4% per month and up to 48% per annum. This capping was introduced by the government to prevent overcharging of the customers and over-borrowing on the part of the customer. It ensures that there are no sky-high interest rates.

Most licensed moneylenders offer customized loans that suit the needs of their clients and their ability to pay. The interest rate differs from one moneylender to the other though capped at 4% to avoid overcharging the borrowers.

Rules and Regulations

Banks

Besides Central Bank, there are other regulatory bodies such as the International Monetary Fund, Financial Action Task Force (FATF), World Bank, Financial Stability Board (FSB), International Organization of Securities Commissions and the Basel Committee on Banking Supervision (BCBS) that oversee the operations of the commercial banks. Singapore’s Central Bank works closely with these bodies to ensure that they are all compliant with international standards.

Licensed Money Lenders

To safeguard the interest of both the lender and borrow, the Government of Singapore placed the following caps on October 4, 2018:

Loan Rules
  • Singaporeans and Permanent Residents with earnings of less than $10,000 per annum should get a maximum loan of $3,000
  • Foreigners residing in Singapore with earnings of less than $10,000 per annum should get a maximum loan of $500
  • Singapore citizens, Permanent Residents, and Foreigners with earnings of between $10,000 and $20,000 should get a maximum loan of $3,000
  • Singaporeans, Permanent Residents, and Foreigners with an annual income of at least $20,000 should get 6 times monthly income.
  • A maximum of 10% upfront administrative fee
  • A maximum of 4% monthly nominal interest rate (NIR)
  • A maximum of 4% per month late payment fee capped at $60 per month
  • Borrowing cost capped at 100% of the loan principal
Regulatory Framework
  • All licensed moneylenders are required to obtain a credit report of the borrower from the Money Lenders Credit Bureau (MLCB) before processing any facility.
  • Moneylenders are also expected to furnish the Bureau with timely updates on the progress of loan repayments.
  • The law does not allow licensed moneylenders to harass and disrupt the lives of their client
  • It also doesn’t allow money lenders to give out their client’s information without their consent.
  • They are not allowed to use violence or illegal methods when collecting defaulted amounts.
  • All licensed moneylenders should have a unique license number from the Ministry of Law.
  • Licensed money lenders are prohibited from lending to individuals who have applied for self-exclusion.

Key Laws/Legislation Governing

Banks

Banking Act (Chapter 19) includes Banking Regulations and Banking Corporate Governance Regulations. This is the law that governs the licensing and operations of all financial institutions in Singapore

Banking Regulations (BR) in Singapore allows banks to run non-financial businesses that are related to their core business. However, the extent of the operation is limited to 15% of the bank’s fund capital and must not comprise of:

  • Property Development and Third-party Property management
  • Manufacturing or selling of consumer goods
  • Hotel and resort business
Banks are also prohibited from:
  • Acquiring equity investment from a single company whose value is more than 2% of the bank’s capital
  • Owning a major stake in an entity whether directly or indirectly without the approval of the Monetary Authority of Singapore (MAS)
  • Disclosing customers information without their consent
Licensed Moneylenders

Money Lenders Act (ACT 31OF 2008) stipulates that:

  • All borrowers should submit a duly completed application form before any loan is disbursed.
  • All borrowers should provide genuine information and submit updated documents to support the information given in the loan application form.
  • Upon loan processing, the licensed money lender will provide a copy of the contract.
  • Every loan contract should provide loan payment of equal installments
  • The maximum interest rate should be based on the nominal interest rate of 4% per month.
  • The interest should be calculated on the reducing balance method (ie) calculate the interest on the outstanding loan balance after payment of each installment.
  • The maximum rate of late interest should be based on the nominal rate of 4% per month and it should be based on the principle and interest of the amount that is already due.

Recent News

Barely eight months after the Government of Singapore placed a cap of $1,500 as the maximum amount that licensed money lenders can advance to foreign workers who earn an annual income of less than $10,000, has the amount since been slashed to $500.

On July 15, 2019, the Ministry of Law also banned licensed moneylenders from:

  • Accepting foreigners as guarantors
  • Targeting low-income foreigners in their advertisement
  • Cross-referencing borrowers to each other
  • Advance more than $150,000 to foreigners at once
  • Advance loans to more than 15 foreigners in any given month or more than 50 foreigners at any given year
  • Not to lend to any person who has applied for self –exclusion to the moneylenders’ credit bureau

On October 15, 2019, the Ministry of Law through a press release warned the public of a new type of scam where the perpetrators offer loans through text messages. They then send fake documents that the client is supposed to fill and pay a deposit of 7% Goods and Services Tax (GST) before loan approval. Twenty such cases have been reported to the authorities with an amount of $110, 000 being lost to the scam

Why Personal Loan?

Contingencies arise and sometimes they find your pocket dry. This is where a personal loan comes in handy. Very few people save money for emergencies. A personal loan is one of the easiest ways in which you can sort out your emergencies. You can either apply for:

  • A Term loan – This is a type of personal loan whereby the lender and the borrower agree on a fixed installment over a fixed period. This type of loan provides the borrower with money upfront which they are expected to settle in a given period. It is the most ideal type of loan for borrowers who require a huge amount of money to finance a large onetime expense.
  • A Revolving loan or Personal Line of Credit – In this type of personal loan, the borrower is given a limit to utilize and once the borrowed amount is settled the amount becomes available again. Borrowers are only charged interest on the amount utilized and not the whole limit. This loan is suitable for borrowers who require small amounts frequently.
  • A Balance Transfer Scheme – This is where a borrower with different loans in different banks chooses to consolidate the loans in one bank for easier management and to save on interest. In this type of loan, most lenders offer an interest-free grace period of 3 to 12 months to allow borrowers to consolidate their loans.
Documents Required in Acquiring Personal Loan
  • Singapore Identification Card or Passport plus Employment Pass
  • Residential address such as utility bills under your name as a proof of residence
  • Payslip or Bank Statement or 12 months Provident Fund Contribution Statement or the latest Income Tax Assessment Notice to show proof of income and ability to pay
Why should you Prefer a Personal loan over other Alternatives?

High Borrowing limit – Personal loan limits are higher and generous as compared to the credit card limit. Mostly you find that personal loans are customized to suit the needs of the borrow unlike a credit card which has limits

Low-Interest Rates – Due to the high number of licensed money lenders in Singapore who are offering the same facility, the interest rates for personal loans tend to be low due to the competition. Every money lender out there is trying to compete by offering an attractive package.

Collateral free – Personal loans do not require collateral. It’s therefore accessible to almost everyone who can meet the monthly installment.

Predictable Repayment Schedule – Personal loans are installment loans packaged with a fixed interest rate, terms, and installments. Therefore, at the approval stage, you are in a position to know how much you’ll be paying each month for how long and the total amount of interest over the life of the loan.

Conclusion

If you are considering applying for a personal loan, it’s important that you shop around because different banks and moneylenders offer varying interest rates. Ensure that you choose the loan provider with the lowest interest rates. Besides comparing interest rates and loan fees, it is also important that you consider the most applicable loan depending on the purpose.

Frequently Asked Questions

What is a personal loan?

A personal loan is a credit facility borrowed either from a bank, credit unions or licensed moneylenders at a fixed rate to be paid over a fixed period.

Who is eligible for a personal loan?

A person who is 21 years and above with a stable source of income

How long does it take to process a personal loan from a bank?

Due to high credit standards, banks may take a few days or weeks to process a personal loan. But this varies from one bank to the other depending on the set turnaround time.

How long does it take to process a personal loan from a licensed money lender?

Generally, licensed money lenders are the fastest in terms of loan processing. Again, this also varies between different money lenders depending on the set turnaround time. But, on average online lending takes as little as 24 hours to process a loan.

What are the different types of personal loans?

There are different types of personal loans since it depends on the way the lender package the facility. But, the most common ones are Term Loan, Revolving Loan, and Balanced Transfer Scheme.

What is the average interest rate that is charged on a personal loan?

Different lenders offer different interest rates and due to high competition you find that most of the interest rates fall below the cap which is 4% per month

What is the minimum and maximum tenure for a personal loan?

Generally, the tenure for a personal loan ranges between 1 to 5 years

Is it advisable to use a personal loan to finance your business?

Yes! You can either use a personal loan to boost your business or as an initial capital for your business.

On what grounds can a personal loan be rejected?

There are various reasons why a personal loan can be rejected. To mention a few: poor credit score, invalid documents, income instability, low monthly income, too many loans among others.

What are the consequences of default?

Personal loan default attracts penalties, lowers credit score and limits your chances of qualifying for a loan in the future.

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