When asked to compare banks and money lenders, many of us are often tempted to liken money lenders to the sensationalised loan shark. Indeed, we imagine money lender loans to carry extremely high interest rates, promoted by shady characters and coupled with brutal debt collection methods. However, this could not be further from the truth for the licensed money lenders that we refer to in this article.
It is important to note that like banks, a licensed money lender is regulated by the Registry of Moneylenders and the Moneylenders Act and Rules in Singapore. All chargeable fees, credit limits and interest rate limits of both banks and money lenders are determined by the Registry. Additionally debt collection methods are also regulated, with legal proceedings being used rather than harassment of the borrower.
Where banks and money lenders differ are in areas of the nature of the loan, speed of processing, credit assessment and interest placed on loans.
Nature of Loan
Banks often handle larger loans that may be used for home renovation, car purchase or the raising of business capital. As such they are inclined to be more cautious, and limit loans to people who are stable enough to survive without an immediate injection of cash.
In contrast, money lenders focus on smaller loan sums to individuals who may use the cash payment of items such as utility bills or car repairs. Hence, they generally are willing to take on more risk and offer loans that might amount to four times of your monthly income.
Speed of Processing
Banks conduct more rigorous background checks on potential buyers to find any potential red flags that indicate an inability or unwillingness to repay the loaned sum. With more sophisticated and complex checks, it may take 7 days or more for the bank to approve and dispense the loan.
Due to smaller loan sums, and the likely urgency of the borrower’s situation, money lenders conduct less intensive background checks. While still complying with the relevant regulations, the focus here is on speed and convenience rather than complete accuracy. As a result, approval for the loan could be granted within a day.
As with background checks, banks are stringent on assessing your credit score. With that in mind, it is absolutely essential that you maintain a good credit score and a low debt to credit ratio if you wish to attain future loans from a bank. Failure to do so will likely mean high interest rate offers or even being turned away by the bank.
On the other hand, when it comes to credit assessment, money lenders are likely to give more leeway than banks due to the smaller sums involved. Despite having a less than stellar credit score, if you are able to prove that you have relatively decent income, money lenders may still approve your loan.
Banks are transparent and upfront about their interest rates, allowing you to acquire information easily before making thorough offer comparisons. The interest rates also tend to be lower as your good credit score is indicative of your ability to repay the loan.
One particular drawback to borrow from money lenders is that they usually only disclose interest rates face-to-face. Consequently, it is difficult for you to compare offers and makes you susceptible to accepting less than optimal options.
Personal Loan Singapore
This article has broadly covered the differences in personal loans offer by Singapore banks and money lenders. Moreover, a variety of more specialised loans exist within these two institutions, and should be carefully considered. Nonetheless, broadly speaking, based on your credit score, urgency of situation and desired loan amount, you may find that a money lender is more suitable for your needs.