New Money Lending Guidelines: Will it Cost You More on Loans?

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When people need fast money in Singapore, they immediately turn their sights to moneylenders. Moneylenders can process loan applications as fast as 24 hours and the loan terms are reasonable enough despite the high-interest rate.

However, because of this preference of Singaporeans and foreigners alike, getting a personal loan from moneylenders in Singapore is a tricky business. There are moneylenders hiding in the shadows and preying on unsuspecting Singaporeans offering personal loans that look good at first but would change haphazardly with high fees and interest rates.

As a result, it is very common to hear in the news about victims charged by these fake moneylenders with outrageous fees and harassed through force.

In response to these occurrences, the Ministry of Law has imposed several rules and regulations that all moneylenders in Singapore are monitored. Unfortunately, monitoring all these moneylenders can be a tricky business and some of the rules must be enforced heavily before it could be done.

With this in mind, the Ministry created new rules in October 2015 which is applied to all licensed moneylenders in the country. As a potential borrower, here are the rules which you can take note before you apply for a personal loan from a moneylender:

Applicable Parties to the new guidelines:

  • New applicants who are planning to take unsecured loans
  • Borrowers who were granted a loan before the new guidelines were out, specifically those who borrowed from June to September 2015. However, they are allowed to get revised interest rate for their loans.
  • The guidelines do not apply to new businesses who were registered two years or more prior to the guidelines and if they have applied for loans during this period.

The Guidelines:

  • For any individual intending to borrow money and earn an annual income less than $30,000, the interest rate will be calculated based on the normal interest rate that can be at 4% maximum per month. Prior to the new rules, it would have been possible that the interest would be around 20% to 40% using the effective interest rate.
  • Interest, prior to the new guidelines, was previously calculated based on their compound basis. However, the new guidelines rule now that the interest must be calculated by reducing the balance. Through this basis, moneylenders will calculate the 4% or less interest on the remaining balance of every repayment.
  • When the loan is granted, moneylenders can only charge you a fee that is not more than 10% of the principal loan for the administrative fee.
  • Moneylenders are not allowed to charge borrowers more than $60 every month for every late payment.
  • The interest rate for late payments is set at 4% per month for both secured and unsecured loans. However, this interest rate can only be charged on the amount that has not been paid yet or paid late. It will not be applied on the payments already done.
  • The total amount of borrowing fees should not exceed the borrower’s principal amount.

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Will Your Loans Be More Expensive?

No, these guidelines will not make your loans expensive. The guidelines are there to ensure that borrowers will be charged less for their personal loans. With the reduction of the interest rates and the fees charged by moneylenders, personal loans will be more manageable for borrowers to have and apply for.

Additional Tricks to Save Up on Personal Loans:

If you want to still save up on your personal loans aside from the help these guidelines provide borrowers, here are some extra tips to help you manage your personal loans:

  • Pay Regularly

If you are going to sign up for a loan, you have an option as to how often you can pay your dues and the duration of time you will have to pay off your loan. If you picked monthly payments, you will need to pay every month.

However, if you will pick biweekly payments, you will be making 26 payments, 2 more payments than the 24 bi-weekly payments you would be making if you stuck to monthly payments.

When you pay off your loans more frequently, it will be easier to pay off and you save on interest charges.

  • Activate Auto-Pay and Round off Your Payments.

If you tend to forget your payments, especially when it comes to salary day, you can use AutoPay to pay off your dues. The amount will automatically be deducted from your account easily when payment day comes and transfer it to your moneylender.

While you pay, it is best you round off your payments to help make a difference with your total dues. If your payments would be amounting to $345, you can round that off to $350. Of course, make sure you can provide this extra amount when you pay.

  • Consolidate all your loans

When you find yourself seeing other options when it comes to personal loans, you would immediately scoff the idea of transferring your loans since it will be a hassle. However, you shouldn’t scoff at this idea, especially if you have a lot of loans, because you can consolidate them together and reduce the debt and interest you have to pay.

Once you consolidate all your loans into one, you do not have to worry about multiple repayments and high interests.

  • Pay Your Loan as Early as Possible

Although personal loans come with long payment terms to help borrowers pay off their dues, borrowers are allowed to pay it off early but with certain conditions and terms. Some moneylenders can charge a penalty, while others do not.

Ask your moneylender in advance if they allow early repayments and if they will charge a penalty or not. If they do not charge a penalty, take advantage of it and pay your dues early. It can save you a lot of money in the long run.

If you are going to apply for a loan, it is important you research the guidelines so you can be an informed borrower. When you have a problem with your loan, you can turn to these rules to guide you accordingly.

Once you are informed of the guidelines, create a strategy that would help you pay off your loan because if you come unprepared, your loans may cause you a lot of trouble so good luck!

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