Need to borrow money in Singapore? Banks and licensed money lenders both offer personal loans. These personal loans in Singapore can be used for any purpose.
However, they’re not entirely similar. Depending on whether they come from banks or licensed money lenders, interest fees and charges may vary drastically. Additionally, while banks may be extremely stringent in their credit assessment processes, licensed money lenders tend to be more lenient.
Intrigued? Let’s do an in-depth personal loan comparison to break down all the nitty gritty details. Being well-informed of the similarities and differences when borrowing from banks and licensed money lenders can help you choose the best personal loan from the best loan provider.
A personal loan is a type of loan that you can borrow from a bank, financial institution, or a licensed money lender. For the uninitiated, licensed money lenders are private, legal lenders whom you can borrow money from in Singapore.
Personal loans from both banks and licensed money lenders are repaid monthly in equal instalments, also known as monthly repayments or equated monthly instalments (EMI). You’ll have to keep up with your repayments throughout the duration of your loan tenure. This may be spread over months or years, depending on the tenure of your loan.
Personal loans are a type of term loan that doesn’t require you to pledge any collateral for your loan, making it an unsecured loan. Personal loans are also all-purpose and flexible in nature — you don’t need to disclose the reasons why you’re taking the loan.
You can easily compare personal loans on Personal Loan Finder at no charge here.
When you’re doing a personal loan comparison for loans in Singapore, here are some of the differences you’ll observe when comparing banks and licensed money lenders.
|When borrowing from a bank||When borrowing from a licensed money lender|
|Eligibility criteria||Singaporeans must earn more than $20,000||Singaporeans, PRs, and Foreigners can borrow even if their annual income is under $20,000|
|Accessibility||Strict credit assessment||Lenient credit assessment|
|Loan amount||Unlikely to get a loan if you earn less than $20,000 annually
Up to 4 – 10 times your monthly salary, depending on your income
|Maximum personal loan amount of $3,000 if you earn less than
Up to 6 times your monthly salary if you earn at least $20,000 annually
|Application speed||Slower as it is more stringent||Faster to provide fast loans catered to everyone’s needs|
|Interest rate||Between 3.38% to 6.52% per annum||Up to 4% monthly|
|Processing fees||1-3% of loan amount||Maximum 10% of principal loan amount|
|Late fees||Variable||Maximum of $60 monthly|
|Loan term||Up to 7 years||Up to 12 months|
This is one of the key differences you’ll notice between banks and licensed money lenders. Banks require their borrowers to have a minimum annual income of $20,000, although foreigners are expected to meet much higher minimum income requirements.
Conversely, licensed money lenders lend to Singaporeans, PRs, and foreigners alike even if they make less than $20,000 annually.
Personal loans from licensed money lenders are more accessible with more lenient credit assessment criteria, making the option an apt choice if you need a personal loan fast but happen to have a less-than-stellar credit history. Yes, you can get a personal loan even if you have bad credit history.
A licensed money lender is allowed to grant you a maximum personal loan amount of $3,000 if you earn less than $20,000 annually or up to 6 months of your salary if you earn more than $20,000 annually.
It is unlikely that a bank will grant you a personal loan if you earn less than $20,000 annually. Banks in Singapore typically offer borrowers loans ranging from 4 to 10 times their monthly salary, depending on their monthly income, creditworthiness, credit history, existing liabilities, and more.
Owing to their more stringent application process, banks take more time to review every loan application before deciding on whether your loan is to be approved or rejected. There are many reasons why one’s personal loan application may be rejected.
On the other hand, licensed money lenders tend to prioritise helping every borrower get a loan that’s within their means as soon as possible.
Banks offer much lower interest rates than licensed money lenders. Licensed money lenders in Singapore may charge interest rates not higher than 4% monthly, abiding by the Ministry of Law’s regulations. Find out how to get the lowest interest rate personal loan in Singapore here.
Both types of lenders determine the interest rate of every loan depending on the borrower’s income level and credit rating.
These vary between 1-3% for banks, and up to 10% of the principal loan amount for licensed money lenders.
Licensed money lenders cannot charge more than $60 monthly for each month of late repayment when you borrow money in Singapore from them, whereas late payment charges often go up to $100 for each month of late repayment when you borrow from banks.
Money lenders offer shorter-term fast loans of up to 12 months, while banks offer personal loans of up to 7 years.
As opposed to bank loan interest rates, a personal loan from a licensed money lender usually has much higher interest rates.
Licensed money lenders can charge an interest of up to 4% monthly. Meanwhile, banks’ interest rates vary between 3.2% to 5.4% per annum, as at time of writing. Keep in mind the effective interest rate (EIR) from banks, which accounts for the true cost of borrowing, varies from 6.5% to 11% per annum.
Make sure to do a personal loan interest rates comparison to find out the difference in your cost of borrowing when considering whether to borrow from a licensed money lender or a bank. Due diligence should also be practised even if you’re looking at borrowing only from banks in Singapore!
Here’s how it may vary, using a $25,000 loan with a fixed 12-month tenure as an example.
|Loan from a licensed money lender (Maximum monthly interest rate of 4%)||Loan from a bank
(Lower-end interest rate of 3.2% per annum)
|Loan from a bank
(Higher-end interest rate of 5.4% per annum)
|Total interest payment for entire loan||$6,965.60||$435.45||$737.27|
|Total payment amount for entire loan across 12-month tenure||$31,965||$25,435.45||$25,737.27|
|Monthly payment amount||$2,663.80||$2,119.62||$2,144.77|
Some of us may benefit more from a personal loan taken from a licensed money lender. Are you one of these people?
If you need a personal loan fast and are unable to qualify for one from a bank, consider approaching licensed money lenders, who have more lenient and inclusive criteria.
You may be unable to qualify for a personal loan from the bank if you have poor credit history, a bad credit score, low income or are unemployed, among other reasons. Thankfully, licensed money lenders are a viable option if you need a loan in Singapore for bad credit.
There may be loan sharks masquerading as licensed money lenders. Therefore, always first check that the licensed money lender you’re speaking with is legitimate. Ensure they’re listed in the Ministry of Law’s List of Licensed Moneylenders in Singapore. Verify that their landline number and office address are the same as is listed, and visit the physical office address.
Next, ensure that you thoroughly understand all interest charges, fees, and terms and conditions. Remember that licensed money lenders have a standardised legal cap on fees and interest rates that they cannot exceed.
Make sure you and the licensed money lender have both signed a formal contract before finalising your loan. If the money lender engages in prohibited actions or harasses you at any point, do not hesitate to make a police report and seek assistance.
There’s no straightforward answer to this question, unfortunately. The fact of the matter is that not everyone is able to meet the fairly strict bank loan eligibility criteria in Singapore.
In such cases, getting a loan from personal lenders (i.e. licensed money lenders) is a feasible option —despite the much higher private money lenders’ interest rates—that’s leaps and bounds better than if you were to wind up going the illegal route.
It pays to compare loan quotes from different licensed money lenders. Use Personal Loan Finder’s free platform to your advantage — simply fill out this online form. Top licensed money lenders will contact you with loan offers.