There are times when you could be facing an urgent financial need, yet you do not have any immediate way to solve that need. In such a situation, you may consider getting a personal loan.
However, in Singapore, acquiring is normally seen to be as very difficult or very easy. But this will depend on the factors that will have pushed you to get a loan, the money lending institution you choose to borrow from, the loan contract terms for your loan, as well as the rates of interest charged.
In Singapore, money lending activities are a legal part of the consumer credit market. This then means licensed moneylenders will offer you personal loans when you need them. Regulations have been established to help monitor the activities of moneylenders, this ensures that these lenders do not over-charge borrowers on interest rates and other applicable charges on their loans.
Even though licensed moneylenders are part of a small portion of Singapore’s credit market, they have in the past been noted to bind borrowers in unfair loan contracts and also charge higher interest rates on the loans they offer.
The Singaporean government has taken measures to control the moneylenders’ activities by putting in place rules and regulations. Even though these rules are more flexible compared to what they were a while back. They still are in place to make sure that the moneylenders run their business in a fair manner with their borrowers, and you, as a borrower, do not end up getting overcharged on your loan.
Interest Rates Charged By Moneylenders
To start off, you as a borrower need to be aware that there are 2 types of loans: unsecured loans and the secured loans.
Secured loans are the loans you get once you put up collateral, like your house title, your car title, etc.
Unsecured loans are the loans that you can access without having to put up some type of collateral. These loan types are offered based on your score. Having a good score will show your capability to repay the loan you take out. While having a bad score will only warn the moneylenders from authorizing your loan application.
As of 2015, moneylenders in Singapore have been required to compute and share with a borrower, their customer, the EIR (Effective Interest Rate) of their personal loan that they wish to obtain before they grant it to you. The Effective Interest Rate (EIR) is worked by taking into account the whole effect of regular loan payments within a time period of a year. The Effective Interest Rate is an interesting system of rules that will best reflect the actual cost of getting a personal loan within the one-year period.
Bearing this in mind, those loans that were contracted from the time period starting June 2012 to September 2015;
- When you make a yearly salary of below S$30,000, you will be charged an EIR of 13% for secured loans
- When you make a yearly salary of below S$30,000, you will be charged an EIR of 20% for the unsecured loans.
However, since October 2015, moneylenders are expected to cap their rates of interest at 4 percent a month. This is irrespective of a borrower’s annual income, and regardless of whether their loan is unsecured or secured. When you fail to repay your loan, the highest rate of interest that moneylenders may charge you will still be 4 percent a month.
The interests you obtain on the late repayments only apply to the loan amount you have not paid. When you missed paying for one month, the interests for the late payments will be charged on that one month you missed.
What You Need To Know Before Borrowing
Borrowers in Singapore need to know the updated interest rates implementation that was placed at the 4 percent cap effective October 2015. The cap limits moneylenders to the 4 % maximum rate amount each month. This interest rates are relevant no matter how big or small the borrower’s income is and if the personal loan granted is secured or unsecured.
If it happens that you as the borrower have missed paying back the loan after the established due date. Then the highest interest rate the licensed moneylenders may charge is still placed on the 4 percent mark a month for the months that the borrower has missed a payment.
What This Means For Borrowers
By dealing with licensed moneylenders in Singapore will protect you. More so from the very high interests which you might incur should you choose to deal with illegal moneylenders.
Especially if you do not make payments on time. For a borrower, having a 4 percent cap, it then means that it is a safer and much clearer way of understanding these rates. Particularly on the way, these interests might work against you.
Computation of Interests Charged
The interest rates are not charged depending on rough estimates. However, they are supported by the calculations done. The working out is not the first principal loan amount after your personal loan has been approved. But, the outstanding principal loan amount after the deduction of all the payments made.
Let’s take for example when you borrow an amount of $20, 000 and so far you have paid back $14, 000. Then the only leftover loan amount of $6,000 is then used for the working out of interest.
This then means that the interest rates will reduce and it all the while that the borrower is repaying their monthly dues.
Late Payment Charges
As you are making late monthly, borrowers need to realize that they will likely incur an interest charge. However, this will not be worked out on the first principal loan taken out. For example, given that a borrower has borrowed $21, 000 then they fail to repay $5,000 as their initial monthly instalment fee.
Then it means that the moneylender will only need to calculate interests on the $5,000 as late repayment interests. Thus it is not calculated on the outstanding $16,000 as it is the outstanding loan amount and it is not due yet.