Interest rate is one of the primary factors that borrowers look out for when taking out a loan from private money lenders in Singapore. A low rate can bring down your overall borrowing costs while a higher one can easily snowball into an insurmountable debt. If you are researching the market for a personal loan with the lowest interest rate from a licensed money lender in Singapore, here is a guide that may help you find the best deal.
Singapore’s Licensed Money Lender Interest Rates – What To Know
First and foremost, approved licensed money lenders’ interest rate in Singapore is capped at 4% per month. This is a regulated rate imposed by the Ministry of Law since 2015.
The rate is applicable for both unsecured and secured loans and borrowers who are unable to make timely loan repayment can only be charged late interest capped at an interest rate of 4% monthly as well. Any late interest incurred will be based on the late payment amount that’s due but not paid — late interest isn’t dependent on your initial loan sum or remaining balance that’s not yet due!
The Ministry of Law also set legal limits to chargeable fees to protect borrowers from unfair loan terms. Approved money lenders are only permitted to levy the following charges and expenses:
- ≤ S$60/ month for every month where there’s late repayment
- ≤ 10% of the loan principal as administrative or processing fee at the point at which the loan is granted
- All legal costs requested by the court for a victorious claim by the lender to recover the loan
What’s the commonly charged licensed money lender interest rate in Singapore?
It is common to find licensed money lenders charging interest rates in Singapore ranging 1%-4%. Many lenders also set their processing fees between 5% and 10% of the approved loan sum, a range that is well below regulated limits.
It is important to note that illegal money lenders may attempt to slap on higher interest rates and put you in a compromising position. To protect yourself against possible money lender scams, you must always choose to work with a licensed operator that is within the Registry of Moneylenders’ approved list.
How money lender interest rates are computed
Licensed money lenders’ interest rates are calculated using the reducing balance method. This method is beneficial to borrowers as it helps to reduce payable interest sums as the loan tenure progresses.
Because the method tabulates interest based on the outstanding principal balance instead of the total loan sum, as you pay down your debt, the amount of interest also decreases. Take note that your monthly instalments will be the same amount, though!
How does the reducing balance method compare with flat rate interest calculation? Assuming you took out a personal loan of S$10,000 from a licensed lender at the monthly interest rate of 3% to be repaid over 6 months, using an online calculator, the:
- Total flat rate interest is S$1800
- Total reduced balance interest is S$1075.85
In this case, the reducing balance method offers as much as 40% interest savings and certainly makes it more advantageous for borrowers. However, truth be told, such savings are only possible if you make timely monthly repayment and not incur any late fees.
How late interest and late fees are calculated
Incurring late interest and charges can significantly increase your total borrowing cost and even add to your debt if they are not repaid promptly.
Using the previous example, if you fail to repay the monthly instalment of S$1,845.98 on time in the first month, the licensed lender can impose a maximum late interest rate of 4% monthly. Late interest plus compound interest will both be incurred, and calculated on a daily basis.
Example
Principal amount due: S$1545.98
Instalment amount: S$1,845.98
Annual interest rate: 3% monthly x 12 months = 36%
Late interest rate: 4% month x 12 months = 48%
Daily late interest rate: 48%/365 days = 0.131506849315068%
Daily compound interest rate: 36%/365 days = 0.098630136986301%
Assuming your payment is late by 7 days,
Late interest calculation is: Outstanding instalment amount of S$1,845.98 x (7 days late x 0.131506849315068%) = S$16.99
Compound interest calculation is: Outstanding principal amount of S$1545.98 x (7 days late x 0.098630136986301%) = S$10.67
Late fee imposed by money lender is: S$60
Total late interest, compound interest, and late fee for paying late by 7 days is: S$16.99 + S$10.67 + S$60 = S$87.66
It is obvious that late fees and charges can increase your debt if a loan is mismanaged. This is why the Ministry of Law stipulated very clear guidelines on how fees can be implemented. As a borrower, you must bear in mind that any one-time administrative fee is capped at 10% of the approved loan sum.
Also, the total charges including late interest, interest, administrative fee as well as late fees imposed by a licensed lender must not be more than the approved principal loan sum.
For example, if you take out a loan of S$10,000, the one-time administrative fee to complete the loan application must not exceed S$1,000. The total of every cost component in the loan comprising interest, late interest charges, the S$1,000 admin fee and up to S$60 monthly late fees must not exceed S$10,000.
How to find a licensed money lender in Singapore with the lowest interest rate
If you are looking for a licensed money lender in Singapore with the lowest interest rate, your best bet is to get multiple loan quotes from different licensed lenders for comparison before signing on the dotted line.
Besides comparing licensed money lenders’ interest rates and loan terms such as repayment tenure and fees, you must verify the money lenders you are dealing with are indeed registered with the Registry of Moneylenders.
When you choose to work with regulated money lenders like 1-Cash, you can rest assured that you are getting highly competitive interest rates and transparent loan terms. From business loans to bad credit loans, 1-Cash offers a variety of loan services that accommodate your financial needs. We also boast a team of professional loan consultants who are trained to customise loans based on your needs and repayment ability so you can maximise your financial potential with ease.
Do you need a personal loan? Contact 1-Cash to apply for a loan now.
