People looking for a way to pay off an emergency expense might come across recommendations to take up a loan. After all, a loan from a bank or legalised money lender in Singapore is an easy way to obtain the cash you need the lawful way.
When it comes to getting loans from money lenders vs banks, it’s important to know the differences between these two very distinct loan providers.
In case you didn’t already know, banks have very strict requirements when individuals apply for a loan. They will scrutinise your credit score, annual income, and other details before deciding whether to approve your loan. These details will also impact the loan package that’s offered to you. If you have a relatively poor credit history, you’ll need to be prepared for higher interest rates.
That being said, registered lenders in Singapore are an excellent alternative to banks. They require fewer documents when you’re applying for a loan and the application process is much more seamless. However, that’s not all.
Read on to find out why you might want to consider obtaining a loan from a licensed lender over a bank.
Quick look: Money lenders vs banks
| Licensed Money Lenders | Banks |
| Loans are more easily obtainable | Loans are less easily obtainable |
| Shorter loan tenure | Longer loan tenure |
| No income requirement | Higher income requirement |
| Higher interest rates | Lower interest rates |
| Lenders will look at your Loan Information Report from the Moneylenders Credit Bureau | Banks will look at your Credit Report from Credit Bureau Singapore |
| Not dependent on your credit score | Dependent on your credit score |
| Regulated by the Ministry of Law’s Registry of Moneylenders | Regulated by the Monetary Authority of Singapore |
What are the differences between money lenders vs banks?
The average person might think that there is no difference between a licensed lender and a bank. After all, they are both regulated financial institutions who offer loans. This might even be the only point people pay attention to when they are desperately in need of money.
However, when you’re in a financially challenging situation, it’s even more important to weigh all your options carefully. Licensed lenders and banks are very different in a number of areas, and you’ll learn why the former might just be better when you’re in an emergency.
1.Time taken for approval
Due to the scale that banks operate at and how much information they need for each loan application, they can take days to process your loan. Even though the application process is convenient thanks to internet and mobile banking, the actual time needed for approval is still relatively long. You might even be required to provide additional documents to the bank.
On the other hand, registered lenders have a much shorter turnaround time. If you’re able to provide the appropriate supporting documents upon application, your loan can be approved within the same day. Ditto for funds disbursal, which will be done right after you sign the loan offer presented to you.
This is crucial if you have an urgently pressing set of expenses to settle, whether it’s the hospital bill from an emergency surgery or an invoice from the workshop for fixing up your car after a sudden breakdown.
2.Credit score requirements
When you’re applying for a loan with a bank, your credit score is an important piece of information that it considers. It goes a long way in determining whether you can repay the loan you’re applying for within the loan tenure you’ve chosen. If your credit rating is poor, the bank will reject your application as it believes you’re a risky borrower.
Conversely, a licensed lender does not put as much weight on your credit score — you can still find a personal loan with bad credit. Despite having a bad credit score, if you are able to prove that you’re drawing a stable income, there’s a good chance that the licensed lender will be able to work out a loan offer for you so long as the simple credit assessment using your Loan Information Report checks out. On the flip side, if you have a good credit score, the lender may even craft a more attractive loan package specially for you.
3.Income requirements
For the most part, banks in Singapore require you to have an annual income of S$20,000 before you can apply for a loan. Should your salary fall below this amount, the chances of your loan getting approved are almost non-existent. This creates a huge dilemma for low-income earners if they have a financial emergency.
Fortunately, licensed lenders are less stringent when it comes to your annual income. Essentially, you’re eligible for a loan even if you’re earning less than S$10,000 a year. And if you’re earning at least S$20,000 annually, you can borrow up to six times your monthly income. However, do note that your application is subject to approval by the lender. The lender will refer to your Loan Information Report before coming up with a conclusion.
4.Borrowing limits
Unfortunately, this is one area where banks have the edge. Because they impose a minimum income requirement of S$20,000 on borrowers, banks generally have a higher borrowing limit. Furthermore, banks have the financial capability to approve higher loan amounts, which is important for individuals drawing a substantial income.
Registered money lenders might be able to approve loans that are up to six times the borrower’s income, but there are instances where they might not do so because the risk presented is too great. This is especially true for smaller businesses who might not wish to deal with the administrative and legal issues that crop up when a borrower defaults on their loan.
If a money lender is willing to offer a loan amount that exceeds the borrowing limit, the lender is either flouting the law or an illegitimate lender. Remember to check if the money lender’s licence and name appears under the list of registered lenders by the Ministry of Law; this will help ascertain if the lender you’re dealing with is legal or not.
5.Interest rates
Legal lenders in Singapore are subject to strict limits when it comes to the interest rates they can charge. The maximum interest they can charge on a loan is 4% a month. Ditto for late interest on an instalment that’s repaid late. Furthermore, late repayment fees and administrative fees do have a hard limit as well.
When it comes to banks, they are more opaque. Their interest rates differ depending on the health of the economy and they might even levy charges like an annual fee. Furthermore, they might even charge you for repaying an instalment at one of their branches. These fees differ from bank to bank, which can be hard to keep in mind for working professionals.
6.Repayment terms
Licensed lenders generally offer loans with shorter tenures of up to 12 months, although you can definitely work out a package that features a longer repayment period of up to 24 months. This allows you to be disciplined with your finances and pay off your debt as soon as possible. After all, it’s uncomfortable to owe an individual or business money for a long period of time.
However, banks typically offer loans with longer tenures of up to 5-7 years. This means that you’ll be committed to repaying the loan for a longer period of time. The repayment amount per month might be smaller, but you might end up paying more in interest over time. You might even lose track of your loan and forget to include the instalment in your monthly budget.
7.Loan types of loans offered
Both banks and licensed lenders offer different types of loans for individuals and businesses. From renovation loans to debt consolidation loans, they’ve got you covered. However, legalised lenders come out ahead because of their personalised service. If you aren’t sure what loan type suits your needs best, the company’s loan officers will be able to advise you.
This ensures that you aren’t signing up for the wrong loan product. By and large, banks aren’t able to offer the same level of service due to how extensive their operations are. Because of how much automation goes into their screening and approval processes, you’ll need to be the one to do your own research and ensure that the loan you’re applying for is the right one for your needs.
Money lenders vs banks: Who offers easier accessibility to loans?
It goes without saying that money lenders beat banks in this area.
Not only do money lenders not impose a minimum income requirement for anyone and everyone looking to apply for loans with them, but also money lenders offer a more streamlined, hassle-free loan application process that requires fewer documents to be furnished.
This rings true no matter if the applicant is a Singaporean, Permanent Resident or foreigner.
Documents required of Singaporean and Permanent Resident applicants:
- IC
- CPF contribution statements or IRAS Notice of Assessment
- Most recent 3 months’ payslips
Documents required of foreigner applicants:
- Passport
- Work Pass
- Most recent 3 months’ payslips
- Address proof (can be from rental agreement, utility bill, phone bill, etc)
Money lenders vs banks: Who should you borrow from?
When deciding to approach a legal lender or bank for a loan, you must consider all the options that are available. After all, it is not advisable to make hasty decisions about your finances, especially when you’re worrying about a sudden, large set of expenses.
It is essential to seek out a good money lender in Singapore or bank with loan terms optimised for your needs to help you deal with your financial concerns. Consider the interest rates offered, how fast approval is, the various fees involved, and your eligibility for the loan. These are crucial in determining how feasible the loan is for you to take it up.
If you’re looking for an upright licensed lender in Singapore, look no further than UK Credit, a dependable loan company that’s been operating since 2008. We offer a range of loans for every financial need.
Get your application started by contacting us here or applying for your loan on our secure website. Our experienced loan executives will reach out to you with a personalised quote in no time at all!
