Haste makes waste. This is often the case for people in deep financial trouble looking for an easy fix. They have second thoughts about getting a loan from the bank for fear of being rejected, a long tedious process, or bad credit. So they turn to moneylenders hoping they will provide a faster and easier way out of their financial rut.
Unfortunately, some come across loan sharks or scammers who, instead of helping them get out of debt, only pull them down deeper. So here are some options to review. Read on to find out if getting a loan from a bank or a licensed financier is the best way to go. We’ll also discuss the risks to prepare for when dealing with these financial brokers.
Bank VS Licensed Moneylenders
Let’s take the business loan as a specific example. Why do people opt for a bank loan rather than a private loan? Because of lower interest rates, and here’s why.
Banks usually have a lower cost of funds compared to other lenders. Their retail consumers, also known as depositors, have lots of money in their savings and checking accounts. Banks, in turn, have easy access to these funds that they can easily lend out. Moreover, when the banks pay very little interest (most pay under ½ per cent) for these deposits, then the said funds are extremely cheap for the bank to use.
On the other hand, private lenders must acquire funds from other banks and financial institutions, or investors looking for relatively good returns- and these come at higher rates. Either way, this raises the financier’s cost of funds which they will have to pass on in their loan rates.
Cheap or Easy?
So here’s the dilemma: cheap money but hard to acquire from the bank, or easy to get loans with higher rates from financial brokers?
Think of it this way, getting a loan from a licensed moneylender is better than not growing your business, or worse, having to shut it down altogether. Just as long as those funds will give you more returns than what that loan costs- you’re not losing anything.
So, if you know in your gut the bank is going to reject that loan, go with the small financial institutions. Just make sure you’re armed and ready with the right info to protect you along the way.
Verifying The Lender’s Legal Status
Licensed moneylenders in Singapore (LML) must be documented in the Law Ministry. The name has to appear on MinLaw’s list along with the physical address and license number. Confirm this in three steps:
- Go to the Ministry of Law’s official website. Click on the link- Licensed Moneylenders list in Singapore.
- Download the PDF file or open it in a new browser window. Look for the name of your prospective private lender to confirm their authenticity.
- The PDF files also have a list of lending companies who have suspended licenses at present to make sure you stay away from them.
On Dealing with Loan Sharks
First-time borrowers often fall prey to these scammers, also known as Loan Sharks. They tend to be quick and easy to deal with, that’s why victims are easily lured into their trap. Little do they know they’re digging their own grave. So how does one prevent this from happening?
Beware of the Following Signs You Borrow Money With a Loan Shark
- Loan Sharks are not licensed to operate, nor are they registered with the Ministry of Law.
- Both secured and unsecured loans have a capped interest rate at 4%. If your loan is repaid late, the interest rate of 4% will be charged. Loan Sharks can go much higher than this.
- Fictitious lenders are shady and won’t bother to explain the terms and conditions of the loan to the borrower in easy to understand terms. They may not even offer a contract at all.
- Asking for your SingPass password is strictly forbidden, nor are they allowed to keep your documents with them.
- Legit money lenders can charge you 10% maximum of the principal loan amount. Loan Sharks can go much higher than this.
- Licensed financiers cannot charge over S$60 a month for late repayments.
- Lenders must issue receipts along with the proper stamps/signatures anytime a repayment is made.
Consequences of Dealing with Loan Sharks
Fear, intimidation and harassment are real. Between January and April 2018, harassment without damage to property spiked 17.5 percent compared with the same period the year before. It mirrors a 33.8 percent trend rise in cases last year compared to 2016.
Loan Sharks have also penetrated the digital landscape using mobile messaging and social media platforms to harass their victims. One of the victims, Madam Tan (Not her real name) told the story of loan sharks spray painting her house and harassing her neighbours. They told them she asked them to be her guarantor.
Some send messages meant to instill fear in you and your family. One of their messages tells the borrower and their family to be careful. They threatened to burn their house. To torture them until they die. They also claim they know where they work and their whereabouts. She reported these to authorities but has already paid out S$400,000 (US$299,625) by then.
These tactics were noticed beginning 2012 and prompted the police to coordinate with other stakeholders like the Info-communications Media Development Authority to prevent such harassments.
Growing your business or having financial security is important, but not at the expense of your safety and security. Don’t take any shortcuts. Whether dealing with banks or money lending companies, vigilance is the key. Know your rights and do your homework to make sure you come up with informed decisions every time. If you’d like to learn about great loan rates, go to homepage and check just how much can you handle for your financial needs.