If you reside in Singapore, you might already be aware that many moneylenders are willing to lend you money. As a result, you don’t have to rely on the banks solely.
In fact, altogether, there are over 150 licensed moneylenders in Singapore as of 1 October 2019. It is much easier and faster to get money from these moneylenders as their loan approval requirements are more relaxed. The types of loans offered by the moneylenders include personal loans, parent loans, student loans, car loans, home loans, and so on.
In case you want to borrow money, you might be wondering how those moneylenders determine the interest rates.
Not all moneylenders offer the same rate of interest. Your interest rate can be determined by your annual income, default rate, number of outstanding loans, length of employment, credit risk status you hold, and so on.
However, since October 2015, moneylenders are to cap their rates of interest at 4 percent per month, irrespective of a borrower’s yearly income, and regardless of whether they obtain an unsecured or secured. If a borrower can’t repay the loan, the highest rate of interest that moneylenders may charge will still be 4 percent per month.
In this article, let’s take a look at all these different factors on how moneylenders decide on an interest rate.
In order to provide better protection for borrowers, recently, The Ministry of Law made new rules limiting the amount a person may borrow from all licensed moneylenders.
& Permanent Residents
|Less than SGD 10,000||SGD 3,000||SGD 500|
|At least $10,000 and
less than $20,000
|SGD 3,000||SGD 3,000|
|SGD 20,000 or more||6 X monthly income||6 X monthly income|
Under these caps, permanent residents and residents of Singapore whose yearly income doesn’t cross $20,000 may borrow only up to $3,000. People earning over $20,000 yearly may borrow up to six times their monthly income.
Foreigners residing in Singapore who earn less than $10,000 annually can borrow $1,500. Foreigners earning between $10,000 and $20,000 annually can borrow up to $3,000. And those earning at least $20,000 can borrow six times their monthly income.
Thus, your annual income can be a deciding factor on the rate of interest the moneylender charges you.
Some moneylenders can keep a default rate and charge everyone the same rate of interest regardless of their monthly salary, yearly income, or credit risk status.
For instance, some borrowers are charged an interest rate of 4% per month applies regardless of their income and whether the loan is an unsecured or secured one. This rate was set by the Ministry of Law with effect from 1 October 2015.
In case a borrower can’t repay the loan on time, the maximum rate of late interest a moneylender can charge is 4% monthly for each month the loan is repaid late.
This default rate of interest set by the MOL (Ministry of Law) is for the benefit of the borrowers. Hence, it is a great measure taken to check illegal moneylenders in Singapore. On top of that, the default rate is safe and transparent.
Number of Outstanding Loans
The outstanding amount refers to the total due of your loan that you need to pay to the bank, including interest and principal to date.
In case you have taken several loans from banks or moneylenders and are yet to pay back the loans, the moneylenders may charge you a higher rate of interest. It is because they are taking a big risk by lending you money, which you may not be able to pay back on time.
Length of Employment
Your length of employment may be another deciding factor on the interest rate you pay your moneylender.
If you are a self-employed person, moneylenders will usually ask you to present your Notice of Assessment for two years. If you have been self-employed for less than a year, this can create an issue. You will have to secure a line of credit while you are still employed. A line of credit is typically valid for at least two years, and it covers the amount of time needed before your Notices of Assessment qualify you for another loan.
In case you are just starting a business and have no employment proofs to show, it can be very difficult to avail a loan or moneylenders may offer you a loan at an increased interest rate.
Your Credit Risk Status
In Singapore, having a functional credit status is very crucial while obtaining a loan from a moneylender. The best grade is AA, followed by B, and C. Grade D is the lowest score often caused by defaults.
If your credit score is low, moneylenders may charge higher interest rates as your credit status poses a high risk. As per Value Penguin, maintaining an excellent credit score may also affect your average personal loan interest rate.
To keep your credit score high, it is recommended to take only the amount of money that you are able to repay in full within the set timeframe.
The common forms of collateral are properties you own, a fixed deposit with the bank, a stock portfolio, and so on. Some moneylenders may ask you to provide your collateral at the time of filling up the application for obtaining loans.
If you provide sufficient collateral, the moneylender weighs up your income as being higher than the quantifiable amount.
However, note that not all the banks accept the same collateral or place the same value on the collateral. The collaterals you provide can, thus, affect your interest rate.
Type of Loan You Take
The type of loan you avail is another factor that determines the interest rate. For instance, Cash Advance Loans and Instant Loans usually have higher rates of interest than personal loans. When you apply for such loans, you get the money instantly; thus, the interest rate is high. Personal loans can take a longer time to process.
Time is a risk factor when it comes to loans. Long-term loans have a higher chance of not being repaid if it leads to default.
Also, a long-term loan is more vulnerable to the effects of inflation as compared to that of a short-term loan. Thus, a moneylender may charge a higher rate of interest if you take a long-term loan. The loans which you are supposed to return within a short time period may typically have lower interests.
The interest rate of a loan in Singapore is determined by several factors, including yearly income, default rate set by MOL, your credit risk and number of outstanding loans, length of employment, collaterals, the type of loan you avail, and time among others.
There are several licensed moneylenders in Singapore who are willing to offer you loans quickly at a low rate. This certainly makes them a better option as compared to bank loans that usually take a long time to obtain and usually ask for high credits.
If you plan to take a loan, it is good to know how moneylenders decide on their interest rates as it will help you make an informed decision while applying for loans.
You should also compare your loan options while applying for one and choose the best. Be wary of illegal moneylenders and loan sharks and make it a point to check the license of the moneylenders before you borrow from them. Make sure you take only what you can return at the right time, as failing to do so may incur more debt.
Singaporeans are constantly in need of money to pay their medical bills, college fees, consolidate debts, or fund a wedding. No wonder, this country has a variety of services, willing to lend personal loans to people in need. Currently, Singapore has 158 licensed moneylenders who can lend money to people who desperately need a loan to pay for an emergency.
If you are planning to borrow from a licensed lender in Singapore, we recommend that you read this article. Here, you will find all the information you need to approach a lender for a personal loan confidently.
What type of loan do you need?
Before approaching a lender for a loan, it’s essential to assess your financial situation and loan requirements. Here are a few questions that will help you gauge your financial stability and determine the right loan type for you.
- Why do you need a loan? Personal loans are small-amount loans designed to pay credit card debts, support a home remodeling project, or pay a clinic. The amount you need to borrow and your current income will determine how much cash the lender can offer you.
- What repayment terms suit you? Lenders may offer fixed or variable repayment terms. Look through the terms of the agreement and select the one that suits your budget.
- What’s your credit rating like? Though licensed lenders do not stress too much upon the borrower’s credit history, it’s wise to know your CBS credit score to assess your financial health. All Singaporeans can procure a credit report from the Credit Bureau of Singapore (CBS) for a nominal fee of S$6. Visit the Credit Bureau Singapore website for more details.
Finding answers to the questions above will help you evaluate your current financial health, allowing you to streamline your personal finances prudently.
What documents should you keep handy?
Personal loans given by moneylenders are unsecured. Hence, the borrower’s financial ability and integrity are critical to loan approval. To begin with, determine what amount you need and check your eligibility for the loan. Visit the Ministry of Law, Singapore website to know the maximum amount you can borrow.
Keep details and documents of your current credit score, income, and proof of employment handy. You will need documents, such as NRIC, computerized payslips, past CPF statements if any, and utility bills for residency proof. If you are a foreigner, you may be asked to produce your tenancy agreement, valid employment pass, bank statements, and employment letter.
By asking you to produce the documents as mentioned above, the lender is only trying to gauge your capability to repay the loan depending on your present-day earnings. Hence, the loan assessment is not based on your credit history. So, if your creditworthiness is poor, licensed lenders will offer a special loan package and work out a repayment schedule that will best suit you.
Make a checklist of the documents needed during the loan application process, improving your chances of getting a loan as quickly as possible.
What are the total costs involved?
Since licensed lenders are governed by the Ministry of Law, they are bound to abide by the regulations set by them. Hence, there is a limit on the amount of interest, late penalty, and other costs they can charge. For instance, a licensed lender cannot charge you a total fee of more than 10 percent of the principal amount. In case you make a late payment, the late fees also are capped at $60.
According to the new moneylender’s regulations, effective 1st October 2015, personal loans from licensed lenders are subject to the following –
- Interest not exceeding 4 percent per month,
- An administrative fee of not more than 10 percent of the principal when the loan is granted
- A late fee of not more than $60 per month
- The total cost of taking a personal loan from a lender (interest, late interest, legal, administrative fees, and other charges) cannot exceed the principal loan amount.
How can you tell whether the moneylender is authorized to lend?
Once you have your documents in place, it’s time to look for a suitable lender who can offer you a quick personal loan.
First things first, know how to spot an unauthorized moneylender. Go through the list of licensed lenders in Singapore and check the status of their license and the client reviews to avoid getting scammed.
An authorized lender will never solicit loans via text messages or phone calls. They are bound to advertise their services using the following media. (Learn how to block text messages from illegal moneylenders)
- Business or consumer directories either through print or digital media;
- Websites belonging to the licensee
- Advertisements placed within or on the exterior of the approved place of business. For instance, on the side of their office wall, gate, or window.
Further, a licensed lender will never retain your personal identification documents like the NRIC. They will never ask you to sign a blank document. Instead, they will be transparent about the loan terms and give you enough time to go through the papers before signing them. The contract will clearly state the repayment period, the rate of interest, and other terms. If you find any of these details missing, find another licensed lender.
Finally, get in touch with the Law Ministry to see whether the address, name, and license number of the lender are a match. Go ahead with the loan application formalities only after meeting the lender at their physical office of the address registered on the website.
What should you do after the loan is approved?
Once you have signed the contract and your loan is approved, the obligation to pay the debt lies with you. At this point, the lender should share the actual principal amount of the loan with you. Licensed lenders are only allowed to deduct a loan approval fee, which is a maximum of 10 percent of the principal amount.
Make sure you have the below-mentioned documents and information with you.
- A copy of the contract
- A receipt of every payment you make
- A statement of account for all the payments made and the balance amount
- Copies of all statements of accounts, receipts of payment, and the other documents
What can debt collectors legally do if you are unable to settle your debt?
Moneylenders lose large sums of money due to borrowers who default on their payment. Hence, most of the time, they outsource the unpleasant task of collecting debts to debt collection agencies who follow up for payments.
However, licensed lenders have to adhere to the code of ethics set by the Credit Collection Association of Singapore. Hence, they will never hire illegitimate debt collection agencies to harass borrowers for payment. This code of ethics prohibits them from using unlawful assembly, violence, intimidation, and harassment as a means to collect debts.
Also, licensed moneylenders are accredited by the Money Lenders’ Registrar, Singapore. Hence, they are obligated to adhere to the established lending guidelines, interest rates, and fees. For instance, as mentioned earlier, licensed moneylenders can charge a maximum interest of 4 percent per month, regardless of the borrower’s income and the nature of the loan. Even if you miss a payment, a licensed lender can charge you 4 percent per month for every month you repay late.
Once you have agreed to the loan repayment terms and conditions, it is critical to adhere to them and make regular payments. If you are unable to pay the money you have borrowed, talk to the lender and negotiate on the terms, asking for an extension or a refinancing plan. However, remember that this negotiation may attract additional fees.
If you are still unable to pay debts amounting to S$15 thousand, you may file for bankruptcy that bars lenders from suing you and freezes the accumulation of interests.
What can you do if you run into a problem?
If you still need financial guidance or help, get in touch with any of the below-mentioned organizations.
Registry of Moneylenders
Get in touch with Minlaw if you have an issue with moneylenders in Singapore. They can offer you useful information concerning the terms and conditions of taking a personal loan from lenders.
Credit Counselling Singapore
It is a government organization that offers credit counseling to people in need of extra cash or financial help. They also provide information on debt management and help borrowers chart a debt repayment scheme.
Credit Association of Singapore (Moneylender’s Association of Singapore)
The CAS is the voice of all the licensed moneylenders in Singapore. You can approach them to access information about a lender. They work towards protecting the interests of the parties involved.
National Council on Problem Gambling
If you are affected by problem gambling, NCPG can help. They assist problem gamblers and their families by distributing information on problem gambling and gambling addiction and offering useful advice to them.
ComCare offers social assistance and schemes for low-income individuals and families, putting them on the path to self-reliance. If you need temporary financial support, you can approach them.
Licensed moneylenders are the fastest and the most reliable sources of personal loans in Singapore today. However, knowing what to expect when approaching a lender can help you make informed financial decisions in your favor.
We are sure the information shared in this post will make your personal loan application process smooth, allowing you to gain the financial independence you are aiming for.
Ideal for a smaller personal loan amountWhether you need quick access to cash for fixing your home or pay a clinic, borrowing from a licensed moneylender is your best bet. Why so? Licensed lenders focus on lending small loan amounts. Secondly, their target audience is people who have been forgone by banks. Hence, they have a special loan package that meets the precise needs of this segment. For instance, if your salary is below S$30 thousand per annum, no bank will offer you an unsecured loan. However, in such cases, licensed moneylenders will provide you with a small-sized payday loan of six times your monthly income. Licensed lenders are legally allowed to offer up to four times your monthly income. However, it all depends on how much they trust you to pay back on time. Licensed lenders do not reject a loan application solely based on poor credit history; they check documents like proof of a stable source of income to ensure timely loan repayment.
Quick access to cashIf you provide the necessary documents and proof of a stable income, a licensed lender can offer you a personal loan within an hour or even sooner. Further, borrowing from licensed moneylenders involves lesser documentation compared to banks where the loan application process is highly complicated and lengthy. So, for quick access to unsecured loans, approach a licensed moneylender.
Flexible termsLicensed moneylenders are quite forgiving and offer flexible payment terms. For instance, if you are unable to repay your personal loan, you can negotiate the terms with them and come up with a flexible and realistic payment plan that helps you repay the loan. Licensed lenders often offer credit counseling where both parties can negotiate the payment terms and interest rates. If you are still struggling with your loan repayment, you can request your lender for an extension or refinancing plan. Though this comes with an additional fee, it can drastically reduce the stress in your life. Lastly, licensed moneylenders will never harass you for loan repayment. Most banks have recovery agents or debt collectors who are trained to pressurize borrowers to repay the loan. Even though they aren’t breaking the law, these follow-ups can be quite overwhelming and scary. On the other hand, licensed lenders are required to comply with the industry code of ethics laid down by the Credit Collection Association of Singapore. Although some Money lenders hire debt collection agencies to recover debts, they will not resort to intimidation and violence, unlawful assembly, vandalism, and harassment for getting their money back.
No hidden costsThe Ministry of Law, Singapore imposes a maximum interest rate and late interest that licensed lenders cannot exceed, regardless of the borrower’s income and the nature of the loan. Lenders are permitted to impose certain charges, such as legal costs, upfront administrative costs, and late fees. However, the total of these charges cannot exceed an amount equivalent to the principal of the loan. Hence, with licensed lenders, there are no hidden costs that may appear suddenly. This clarity is not the case with banks where the borrower has to be cautious and read through the loan fine prints to check for additional costs if any.
Improves your credit scoreBorrowing from a licensed moneylender is the best way to clear your old debts and pay back in installments mutually agreed by you and the lender. As shared earlier, licensed lenders offer a tailored loan package for people whose credit is failing. After doing a thorough background check and assessing your capability to repay the loan, they lend you cash that can be used to repay high-interest rate debts. Hence, borrowing from a licensed lender helps you consolidate your debts and quickly pay the installments on time, thereby improving your credit score.
High-interest ratesFor all the special privileges that borrowers enjoy, the interest rate on a loan from licensed moneylenders can be quite high. Though the interest charged by banks is quite low (3-6% pa), licensed lenders charge a fixed interest and accommodate people with less than perfect credit. Since the lending standards are pretty low, borrowing from a licensed lender is the best option for people who need immediate funds and have a poor credit history. Further, licensed lenders are monitored by the government. So, you don’t have to worry about violence and other threats that come with borrowing from a loan shark.
Several ah longs pose as licensed lendersWhen applying for a personal loan, it is crucial to choose an authentic licensed lender. Several unlicensed lenders and ah longs illegally use the license number of authorized moneylenders and trick borrowers into taking a loan from them. If you fail to check the moneylender’s credentials and background, you may suffer serious consequences later. Before approaching a lender, it is wise to visit the Registry of Moneylenders, Singapore and check whether or not they are authorized. As of September 2019, there are 158 licensed lenders and credit firms in Singapore. Also, remember to check details, such as licensed validity and client reviews to make sure the lender is authorized and trustworthy.
Borrowing from a bank
Ideal for huge loan amountsBanks are larger organizations compared to licensed moneylenders. Hence, people having a stable income and healthy credit score can lend two to six times the monthly salary. Thus, a bank loan can be useful if you have to pay for a huge expense like an EMI for your dream home or fund your venture.
Low-interest ratesTaking a loan from banks is a cost-effective option as they offer a lower interest rate in comparison to licensed lenders and credit cards. However, if you fail to pay back the loan, your credit score will suffer. Further, most banks show two interest rates on personal loans, the lower one being the annual interest rate. This number is usually heavily promoted by banks. However, as a borrower, you should also pay attention to the effective interest rate (EIR) that takes into account the loan processing or administrative fee and your loan repayment schedule. Don’t merely get enticed by the low-interest rates offered by banks. Make sure you enquire about the EIR too, failing which you may end up paying more than you owe.
A stringent loan approval processUnlike licensed lenders, banks are slow in approving a loan application and have strict requirements for approval. They have several restrictions concerning the applicant’s credit history, citizenship, and income. For instance, most banks extend personal loans only to citizens of Singapore or PRs who earn a stable income of more than S$20,000 per annum. For foreigners applying for a personal loan, the minimum salary should be S$45,000 per year. Further, borrowers are required to go through several hoops before they can get the loan. For instance, they have to complete a whole lot of paperwork and produce documents, such as proof of age and identity, address, income, NRIC, recent salary slips, current income tax returns, and statement of a bank account. Thus, getting the money in your bank may take three days or more.
Substantial penalties for missed or late paymentBanks can be extremely unforgiving when it comes to a missed or late payment. A few financial institutions charge a flat penalty while others charge a percentage of the outstanding balance. Several banks also increase the interest rate on the outstanding balance. Thus, if you miss paying an installment, you land up paying more than you owe.
Can negatively impact your credit scoreDefaulting on your monthly installment can severely affect your credit rating. A few banks give borrowers 60 to 90 days before reporting the delinquencies to the credit bureau. However, more than two missed or late payments not only attract heavy penalties but also reduces your creditworthiness.
Take home messageWhen it comes to personal loans, most Singaporeans can either borrow from the bank or a licensed moneylender. However, each of these credit options comes with a unique set of advantages and disadvantages. When you are in immediate need of cash, don’t just make an erratic financial decision. Use the information shared in this post to weigh your personal loan options.
Ever received a text message from someone you don’t know, offering you a fast loan without a minimum salary? Chances are, a loan shark has targeted you. And you are not alone.
A loan shark is someone within a personal or professional network offering to grant fast loans for large sums of money. Usually, the funds come from unidentified sources, and they work from private businesses or unregistered entities. They may threaten you or use violence for debt collection.
Many people have fallen prey to loan sharks. Low-income families and individuals are the main targets of loan sharks.
In one such case where one Singaporean woman fell prey to 50 loan sharks, it all started with one text message promising fast cash. As per CNA, the woman was mired in debt when she received an SMS for a money lending service that offered a company name and telephone number.
The unsuspecting woman gave out her personal particulars and received the money fast. When she couldn’t pay off one of her loans due to high-interest rates and ever-changing terms, she borrowed money from another loan shark to settle it. Soon it became a vicious cycle.
The woman then started receiving threatening messages when the debt mounted, and the harassment even got physical.
An investigation made by The Straits Times revealed that these unlicensed moneylenders now have been acquiring databases of mobile phone numbers and hounding potential customers using new technologies.
You must borrow money only from licensed moneylenders. Not doing so can put you in hot waters. And in Singapore, it is even illegal to borrow money from unlicensed moneylenders. Read more about why you should avoid unlicensed moneylenders in this article.
Even though you don’t end up borrowing money, receiving unsolicited messages from unknown persons can be annoying and even frightening. If you have been a victim of loan sharks, here’s how to deal with it.
How to Block Text Messages from Loan Sharks
Register to the Do Not Call Registry
By registering to the Do Not Call (DNC) Registry, you can opt-out of marketing messages addressed to your telephone number. In different regions, there are DNC regimes that prohibit organizations from sending marketing messages to your telephone numbers, including mobile, fixed-line, housing, and business numbers, registered with the registry.
In cities like Singapore, you can register to three DNC Registers– No Voice Call Register, No Text Message Register, and No Fax Message Register.
Don’t Respond to Shark Messages
You are not obliged to reply to an unsolicited loan shark SMS, especially one that offers fast loans, financial assistance or relating to online gambling. If you do, it will be like adding fuel to the fire. Most probably, the messages are sent out from illegal moneylenders.
Sure signs scream that a message is from a loan shark.
Here are some of the specific signs when a lender is likely to be a loan shark:
- If the lender is charging ridiculously high-interest rates
- When the lender asks you to turn over your ATM card as collateral
- In case when the lender doesn’t provide any formal loan contract
Report to the Police about Loan Shark Messages
If ignoring doesn’t help and you continuously keep receiving unsolicited messages offering you a loan, you can complain to the police.
In Singapore, you can notify the police via i-Witness at https://www.police.gov.sg/iwitness. You can also call the National Crime Prevention Council’s ‘X Ah Long’ Hotline at 1800-924-5664 (1800-X-AH-LONG).
Block Contacts or Set up a Whitelist for Your Smartphone
Your smartphone provides features such as block contacts or whitelist numbers. You can set it up on your phone to avert unsolicited calls.
For iOS Users
Either block contacts and phone numbers on your devices or set up a whitelist for approved numbers on your iPhone. Don’t know how to set up a whitelist? Put approved contacts into the favorite list and switch on the Do Not Disturb mode. Be aware that you might miss calls from certain organizations, such as banks or recruiters if they are not on your whitelist.
Also, email Apple for the same by sending an email to firstname.lastname@example.org.
Your email should contain the following information:
- A screenshot of the message
- The email address or phone number that sent the iMessage.
- The date and time that you got the iMessage.
Here is another guide on how to block and filter phone numbers on your iPhone.
For Android Users
Go to the android messaging app to find a built-in spam filter. Tap it to activate it and hold in the Text message of the sender you want to block. You will see options to Archive, Delete, Notify, and Block the person.
You can also follow this link to learn how to block phone numbers on your Android phone. Moreover, you will find several third-party apps that allow you to filter out such spams. Most importantly, bear in mind not to reply or interact with these texts and report them promptly. You can also block such numbers using your WhatsApp messengers.
The best way out to save yourself from loan sharks is to be aware. You should be able to read the signs in the messages you receive that warns you that you are the target of a loan shark. Mention it to your family members and friends too lest they fall for the trap unknowingly.
Also, be alert and do not communicate with those unsolicited dealers. If they keep bugging you, follow the tips as shared above. If you urgently require money, ensure to borrow it from licensed moneylenders.
All in all, stay away from loan sharks as far as possible!
Unlike personal loans from licensed moneylenders in Singapore, a loan to friend rarely attracts an interest rate. As a result, you need to be careful about who you lend money to avoid challenges down the road. Before we proceed and look at some of the frequently asked questions about lending money to friends, it is essential to note that research shows approximately three-quarters of people who borrow money from friends never repay fully.
Is it Bad to Lend Money to a Friend?
Based on the statistic discussed above that shows most friends do not repay money borrowed from friends in full, it is not a good idea to lend money to friends. If the friend fails to repay you, you will have lost the money and a friend.
To avoid such a scenario, it is wise to give them a manageable portion of the money they need based on your budget and financial obligations. In addition, if you are married or in a committed relationship, consult your spouse about the loan to avoid disagreements down the road.
Can you Legally Lend Someone Money?
The first thing that you need to note is that Singapore Moneylenders Act prohibits unlicensed moneylending businesses. However, the Act does not prohibit moneylending. Giving loans to a friend or family member does not mean that you do so for profit or business gain unless there is continuity about the transactions or if you (the moneylender) lent others money readily and freely.
Concisely, loans to family and friends do not require a license. It is also legal to charge an interest rate on a loan that you give to a friend or family member provided you are not carrying on the business of moneylending. On the same point, IOUs are legal. Read more on how to lend money to a friend here.
What is an IOU?
An IOU is a simple contract that highlights the terms of the loan. Unknown to most people is that an IOU is different from promissory notes that are controlled/governed by the formal requirements listed in the Bills of Exchange Act.
How Do I Refuse to Lend Money to a Friend?
One of the hardest things to do is to look at a family member or friend who needs financial help in the eye and say NO. The decision not to lend money to a friend could cushion you from a financial turmoil down the road, especially if you are not financially stable.
Here are some tips on how to refuse to lend money to a friend diplomatically.
- Make it your policy
- Be direct and brief
- Request for additional time to think about the loan
- Offer to help in other non-monetary ways
- Do not disclose financial details or reasons why you cannot loan them money
- Give the money as a gift
Let us proceed and look at five questions that you need to ask yourself before lending money to a friend.
Can you Afford to Give the Loan?
As mentioned earlier, make sure that you consider your current financial status and budget before you give a loan to a friend. Ideally, you should be able to meet your financial obligations comfortably before helping your friend or family member.
Consider where you will get the cash from and come up with a contingency plan of recovering if the friend fails to repay you.
Will the Friend be Able to Repay you Back?
We all hope that our family members or friends will pay back the loan in full. But, unforeseen incidents could hinder them from repaying you within the agreed timeframe. Before you give them the money, organise a meeting to discuss how they are going to reimburse you the money.
Ask them how much time they will need to repay you. If the friend is known to take months to repay or fails to pay back loans, you should tread carefully. If not, be at ease with the idea that you might not get your money back.
What Happens if I Never Get the Money Back?
There is no guarantee that the friend or family member will give the cash back to you within the agreed period. How will such an incident affect you financially? Your friendship will likely be affected negatively if they fail to repay you.
Concisely, if not getting your money back will plunge you in a financial turmoil, consider not lending the money to the friend. On the other hand, if you are comfortable with the fact that you will still be able to meet your financial needs even if you don’t get your money back, then go ahead and lend them the money.
The point we are trying to put across is that, you need to cover all loose ends and anticipate for the worst as you hope for the best.
Why Do They Need the Money?
The purpose of requesting the money from you is equally important. Borrowing money to clear medical bills or pay school fees is different from borrowing money to go on a vacation. If you have decided to go ahead and give your friend the money, you need to be unbothered by how they are going to spend it. After all, money is a sensitive topic.
What are the Alternatives?
If by now, you are convinced that you cannot afford to lend money to your friend, consider other options available such as applying for a loan from a legally accredited moneylender in Singapore. You could also float the idea of selling some of the valuables they no longer use to pawn shops.
Lending money to a friend is not easy, especially if you know that the chances of getting your money back are low. Take the time to consider all the factors before making your financial decisions to avoid regrets later. More importantly, consider discussing the various legal personal loan options available with your friend.