Nearly every day there is a new story of unlicensed money lenders harassing borrowers in Singapore. These organisations tend to be incredibly ruthless. Recently, a story emerged in which loan sharks threatened a 7-year-old girl. Still, borrowers continue to get tangled up with these groups. How can consumers identify predatory loans and keep these lenders at bay?
How to Identify Loan Sharks
The first step in avoiding unlicensed money lenders, also known as ah long or loan sharks, is being able to identify them. To determine whether or not you are dealing with a illegitimate lender, it can be helpful to understand the differences between licensed and unlicensed money lenders.
For example, licensed lenders are only allowed to advertise through business or consumer directories, on their own websites or business premises. Because loan sharks are not allowed to advertise in these ways, they often resort to distributing pamphlets, SMS text messages and emails. If you receive an offer from a lender and you are unsure whether or not it is a licensed lender, be sure to check the Ministry of Law's complete list of licensed money lenders in Singapore. Sometimes, loan sharks will use a similar name to a licensed lender's, so make sure to carefully match their full names as well.
As loan sharks become more adept with technology and at impersonating licensed money lenders, it is important to carefully examine the terms of their loans. For instance, the maximum interest rate that licensed money lenders can offer is 4% per month. They are also limited in the amount that they can lend to based on individuals' income levels. For example, someone that earns less than S$20,000 can only get a loan of up to S$3,000. Individuals earning between S$20,000 and S$30,000 are able to borrow up to 2 times their monthly income, and individuals earning S$30,000 to S$120,000 are eligible for loans of up to 4 times their monthly income. If you are offered a loan for more than your income legally allows, a loan with an interest rate of more than 4% interest per month or a loan with a significant lack of detail, it is a red flag and you may be dealing with an unlicensed lender.
Alternatives to Unlicensed Money Lending
Unlicensed lenders tend prey on individuals that are desperate for cash by offering loans with incredibly high interest rates. For example, predatory lenders often target individuals that have already accumulated personal debt or are not eligible for credit cards or loans.
For individuals that are eligible for loans from licensed money lenders, there are many preferable alternatives to unlicensed lenders. For example, individuals that need to resolve their credit card debt should consider a balance transfer loan or a debt consolidation loan if their personal debt will require more time to repay. These loans allow borrowers to repay their debt at much lower rates than credit cards charge.
For individuals seeking cash to make any large one-time payment such as a wedding or a medical procedure that is not covered by their health insurer, there are personal loans that charge much more affordable interest rates than other types of debt.
Individuals that are not eligible for credit cards or loans should not fall for the draw of easy cash from unlicensed lenders. Besides the fact that loan sharks harass and threaten individuals that cannot repay their debt, these loans charge exorbitant interest rates that will can result in even more debt. Individuals that cannot get financing from licensed lenders should reach out to their closest family and friends to explain their situation. If that doesn't work, it may be necessary to seek help from government schemes or charitable organisations.
Thankfully, money lending harassment has actually become much less common in Singapore. However, individuals will take little solace in this trend if their own home is vandalised or if their family is threatened. The best way to avoid unlicensed lenders is to be able to discern the difference between legitimate lenders and loan sharks steer towards the least expensive, legal financial products.