A report by The World Population Review reveals that Singapore is among the most expensive countries in the world with a cost-of-living index of about 80.
This high cost of living often forces Singaporeans to spend a large portion of their salary on securing a roof over their heads, leaving little for other priorities like health, emergency situations, education, and recreation.
Consequently, credit cards and personal loans are the most popular methods adopted by Singaporeans to fulfill most of their needs. If you are in need of money, it’s worth considering the pros and cons of these two major lines of credit. This will not only help you make an informed decision in favor of your cashflow but also uphold your credit rating, which determines your creditworthiness.
Read on to learn more about these credit options to choose the most suitable one when you urgently need funds.
Credit Card Loans
Convenience and Safety
In Singapore, credit cards are widely accepted by brick-and-mortar merchants and online stores. As a result, Singaporeans do not have to worry about carrying a wad of cash when they can use a card. Credit cards are not only a convenient mode of payment but also protect people from being victims of robbery and other heinous crimes.
Further, the widespread use of NFC technology and apps like Apple Pay, Android Pay, and Samsung Pay are making it easy for people to use their credit cards. For instance, NFC technology allows users to merely tap and pay for goods or services.
Credit Cards Are Accompanied by Perks
Credit card companies offer a variety of perks and rebates, such as restaurant deals, petrol station discounts, airline miles, and cashback points to encourage customers to spend more with their cards. These so-called generous perks often tempt the Singaporeans to use credit cards in bouts of unemployment and for paying for the essentials.
Not a Cost-Effective Option
Firstly, amidst the perks and benefits they offer, customers often fail to pay attention to the high processing fees charged by credit card firms. Secondly, credit cards charge exorbitant interest rates that can range from 25 to 30 percent per annum. So, if you forget or are unable to pay the bill by the last date, you will be charged interest on the outstanding amount and a late payment fee.
Hence, a credit card swipe can prove to be quite expensive for an ardent card user.
Negatively Impacts Your Credit Score
Owning a credit card is more of a responsibility than a privilege. Each month, credit card companies have to report your credit activity to the Credit Bureau Singapore (CBS). For instance, they regularly share information like your credit limit, credit card balance, and payment status and history with the CBS. All these factors affect your credit score.
So, unless you have maintained your credit in good standing and with a low balance, your credit rating is bound to suffer.
Increases the Burden of Debts
Credit card owners are always under the false impression of having ready money available for all their needs. They often take this for granted, causing them to swipe the card without even sparing a thought. This soon becomes a habit, leading to increased credit card debts.
This chart shows how the burden of credit card debts is increasing each month, thereby crushing the Singaporeans who are unable to meet their repayment obligations.
Restrictions Pertaining to Citizenship
Not all credit card companies offer cards to foreigners and those that do offer limited products with exorbitant interest rates. With no credit file to refer to, credit card firms impose strict income requirements on foreigners to offset the risk of lending. Most credit card firms also look at the length of time remaining on the visa, ensuring that the borrower will be present in Singapore to repay the debt.
Lastly, if you are a foreigner in Singapore and your credit card application is rejected, it may negatively affect your credit score.
People with Poor Credit History Don’t Stand a Chance
Good credit history is one of the prime requirements for being eligible for a credit card. Your credit score is determined by the CBS algorithm using factors, namely the utilization pattern, recent credit, late payments, and credit account history among others. Having a poor credit rating can lead to your credit card application getting denied.
Borrowing from Licensed Moneylenders
The Process Is Fast and Cost-Effective
Borrowing money from licensed moneylenders is faster in comparison to credit cards. Moreover, licensed moneylenders are forgiving and lend money even if your credit rating is poor.
Loans from licensed moneylenders are unsecured loans. This means the loans need not be backed by collateral (unlike secured loans). Though they charge a higher interest than secured loans, the rate is still far lower than credit cards. Also, the interest rates on personal loans are fixed, unlike the ones on credit cards that keep wavering as the balance increases.
Lesser Impact on Credit Rating
Each time you owe more money or have multiple debts, your credit score drops. Even small amounts of debts scattered across various credit cards and personal loans can affect your credit rating for the worse. Accepting a loan from a licensed lender can help you consolidate your credit card debts, and manage one account with fixed monthly repayment. Paying off your credit card and other debts will significantly improve your credit rating.
Ideal for Those Who Need Urgent Funds
Borrowing from licensed moneylenders is ideal for those who require money urgently. For instance, you can apply for a loan from a licensed lender for education, paying your healthcare bills, or funding your small business.
Further, licensed moneylenders can offer bigger loans on flexible terms. On the other hand, credit cards have a limit per month that cannot be surpassed and fixed terms.
Licensed moneylenders in Singapore are governed by the Ministry of Law. Hence, before granting a loan, they adhere to the strict ethics of the ministry and verify the borrower’s annual income and repayment capacity. If the borrower’s credit history is poor, a licensed moneylender may offer a separate loan package that’s specifically for people with bad credit.
Increasing Cases of Forgery
Several lenders illegally use the license number of existing licensed moneylenders to trick customers into signing a loan contract. They often use forged documents, such as a blank stamp paper as a means to recover the money at a later stage. So, if you fail to research the moneylenders, you may land into a serious problem.
It may seem tough to identify these ah longs who pose as licensed lenders; however, being mindful of certain warning signs can help you know whether or not the moneylender holds an authentic license.
When we gauge the pros and cons of each of the competing options shared in this post, borrowing from an authorized lender emerges as a cost-effective option in Singapore. Hence, instead of dealing with the towering credit card interest rates, consider approaching a licensed private moneylender for a personal loan.
Use the information shared above to weigh your options and choose a comfortable source of loan for yourself.
Questions? We have answers
Interest rates are usually lower when you borrow from a bank. However, banks must perform stringent checks on loan applicants that can take a long time. Additionally, if you have a bad credit score or are affected by TDSR, it might be difficult to borrow from a bank.
Licensed money lenders can charge up to 4% per month in Singapore, which is very high. However, they can also dispense the money on the same day and do not require you to have a good credit score.
Read our blog on whether you should borrow from a bank or a licensed moneylender here.
Licensed money lenders in Singapore charge between 1-4% per month excluding additional administrative fees.
According to the Ministry of Law, the maximum interest that a moneylender is allowed to charge is 4% per month and the administrative fee is capped at 10% of the loan amount.
The short answer is yes, high interest loans are legal in Singapore. Financial Institutions such as banks can charge up to 25% per annum for interest on their credit cards and licensed moneylenders can charge an interest of up to 48% per annum.
If you earn $10,000 per month and you are a Singaporean/PR, you will be eligible to borrow up to $60,000.
Here are the loan caps provided by the Ministry of Law:
& 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|
Most licensed money lenders in Singapore do not require a minimum credit score to provide a personal loan. Each loan is reviewed on a case by case basis and depends on various criterions set by the moneylender.
Read more on credit scores and how you can purchase a credit report here: