How to Tell the Difference Between a Licensed Moneylender and a Loanshark

We all need to borrow money from time to time.

In these situations, we often look to moneylenders as an easier, more convenient alternative to borrowing money from the bank.

It’s true: licensed moneylenders can be a life saver when you need to borrow money quickly. Unfortunately, in recent years, an illegal industry of ‘loan sharks’ posing as money lenders has grown rapidly, preying on innocent people who have nowhere else to go. These loan sharks are known for their ruthless business practices, charging massive interest rates--sometimes 40% per month or more--and threatening, coercing and intimidating borrowers.

While we might wish that loan sharks admitted the real nature of their business openly, the fact is that many claim to be licensed moneylenders. For this reason, you must know how to tell the difference between a licensed moneylender and a loan shark if you are seeking credit from a lender. The following 8 tips will help you tell who you can trust and who to watch out for.

1. Licensed Moneylenders Will Explain the Terms of Your Loan in Language You Can Understand.

Singapore law requires that licensed moneylenders explain the terms of your loan to you in language that you can easily understand. This includes answering any questions you have about your loan, as well as explaining your interest rate, payment method options, and repayment period.

If you run into a moneylender who hands you a contract and refuses to explain the terms in plain English, run. It’s very likely that you are dealing with a loan shark.

2. Licensed Moneylenders Set Unsecured Loan Amounts Based on Your Income.

For unsecured loans, Singapore law sets maximum amounts based on personal income. As of 2016, these rates are:

  • Less than $20,000 a year: up to $3,000.
  • Greater than $20,000 but less than $30,000 a year: up to 2 months’ income.
  • Greater than $30,000 but less than $120,000 a year: up to 4 months’ income.
  • Annual income $120,000 or above: no limit.

If you speak with a lender who is offering an unusually high amount (higher than what is legally allowed given your income), take it as a warning sign: you may be dealing with a loan shark.

3. Licensed Moneylenders Will Always Have You Sign a Contract.

Licensed moneylenders are required by law to have their customers sign a contract. The contract will be written by a lawyer, and include information such as:

  • Interest rate.
  • Late payment fees.
  • Repayment period.
  • Etc.

If somebody offers to loan you money without a contract OR asks you to sign a blank or incomplete contract, do not accept the offer. This individual is not behaving like a licensed moneylender, and may be a loan shark in disguise.

4. Licensed Moneylenders Do Not Charge Above-Market Interest Rates.

All licensed moneylenders are required to follow Singapore guidelines on interest rates. Since October 1st, 2015, the maximum interest rate has been set at 4% per month. A licensed moneylender will never charge higher than that amount. A loan shark, on the other hand, will usually charge far more than that--loan sharks charging 40% per month or more is not unheard-of.

5. Licensed Moneylenders Can Only Charge 3 Types of Fees.

As per Singapore law, a moneylender can only charge 3 types of fees (aside from interest):

  • In the event that a loan goes into default: late payment fees not exceeding $60 monthly and late interest fees not exceeding 4% monthly on the outstanding principal. It should also be noted that late interest fees do not compound like regular interest; they accumulate monthly on the late portion of the principal.
  • Up-front service fees (may not exceed 10% of the value of the loan).
  • Legal fees arising from a court challenge.

If you run into a lender who tries to charge fees above these maximums, it’s very likely you’re dealing with a loan shark. For example, if a lender says that you will need to pay $100 a month in late payment fees, they are charging illegal fees--a licensed lender wouldn’t knowingly do this.

6. Licensed Moneylenders are Listed on the Ministry of Law Website.

All licensed moneylenders are listed on the Singapore Ministry of Law website. If you are in contact with a moneylender, make sure to check the website and see if they are listed. If they are not, it is very likely they are a loan shark.

Click here to view the Ministry of Law’s Registry of Moneylenders

One situation where a licensed lender may not be listed, is if they received their license very recently and the site has not been updated with their information. If you believe this to be the case, call the ministry at 1800 2255 529.

7. Licensed Moneylenders Will Always Have An Office.

By Singapore law, licensed moneylenders are required to have an office, which must match the one registered for them on the Ministry of Law website. Typically, a professional moneylender will conduct their business in a well-maintained office in a building, similar to an accountant or a lawyer. Your initial meeting and contract-signing with a moneylender will almost always take place in their office space, though they may communicate by phone or email afterwards.

A loan shark, on the other hand, will often not have an office. Being an illegal business, they need not worry about what the law says. Therefore, the legal requirement to have an office doesn’t apply to them. So if you run into someone claiming to be a moneylender but who does business exclusively online, or openly admits to not having an office, watch out. They’re very likely to be a loan shark.

8. Loan Sharks Often Use Threats and Abusive Language

Finally, loan sharks will often rely on threats, intimidation and abusive language to collect fees. Professional guidelines do not permit licensed moneylenders to use any of these tactics; should you encounter a ‘moneylender’ who has a reputation of threatening or abusing their customers, stay clear. They are very likely a loan shark.

Unfortunately, tactics like these do not usually start until after a loan has been given. A loan shark may put on a friendly face at the first meeting, only to become abusive when trying to collect. As always, when dealing with someone claiming to be a moneylender, you should check the Registry of Moneylenders to see if they are licensed.

9. Check the Licence and Address Information with the Ministry of Law

Be aware that loansharks will sometimes use a licensed moneylender's name, address, licence number and other information to build a false sense of security and trust with victims. To be safe, we highly recommend that you take the time to check the information provided by anybody claiming to be a moneylender, using the following methods:

  • Look up the license number provided on the Ministry of Law's website:
    https://www.mlaw.gov.sg/content/rom/en/information-for-borrowers/list-of-licensed-moneylenders-in-singapore.html
  • Check that the address, the name and the licence number match.
  • Finalize the loan and sign the contract in person only at the office address registered with the Ministry. Licenced moneylenders will always get you to sign the finalized contract in person at the registered office. If they tell you to sign the contract elsewhere, or don't even have a contract, you can be sure that you're dealing with a loanshark.

A final word:

Knowing your rights when it comes to borrowing money is crucial to your financial safety. There are thousands of loan sharks operating in Singapore, preying on innocent people who lack the information necessary to make good decisions.

If you found the information in this article useful, consider sharing it with your friends and family. It may may save them from being preyed on by illegal businesses.