What is Unlicensed Money Lending?

Unlicensed money lending is a pressing issue in Singapore, presenting significant risks to those in urgent need of funds. 

Often disguised as a quick financial fix, these illicit activities exploit the urgency and vulnerability of borrowers, leading to situations that can escalate into severe financial distress.

Unlicensed money lending involves individuals or groups offering loans without the authorisation or licenses required by the Monetary Authority of Singapore (MAS). 

Unlicensed lenders are not listed among the MAS-approved financial entities and often engage in unethical practices that put borrowers at great risk. These illegal lenders may use deceptive tactics such as masquerading as legitimate entities through digital communications like SMS and WhatsApp or creating fake online profiles that mimic licensed lenders. Their operations can lead to severe legal repercussions for involved parties, with penalties including hefty fines, imprisonment, and even caning for more serious offences like harassment or aiding the lenders' activities.

Identifying unlicensed money lending is crucial for financial safety. Look out for these warning signs to avoid falling victim to illegal loan practices.

If it seems too good to be true 

When faced with financial strains, offers of immediate cash relief with astonishingly low or no interest can be tempting. Unlicensed money lenders often exploit this vulnerability, presenting loans with terms that seem highly favourable but are unrealistically lenient. These offers are designed to attract desperate borrowers, sidestepping the usual due diligence about their repayment capabilities. 

Therefore, always be wary of lenders who promise exceptionally low interest rates, instant approvals, and guaranteed loans, irrespective of credit history. Such terms are often precursors to exorbitant hidden fees, severe debt cycles, or losing one's assets due to fine-print conditions not initially disclosed. 

In Singapore, authentic financial providers operate under stringent regulations, ensuring transparency and fairness, contrasting sharply with the opaque and risky offers from unlicensed entities. Always verify the legitimacy of the lender, ensure that they adhere to legal standards, and scrutinise offers that appear too favourable, as they might lead you into deeper financial troubles rather than providing the relief you seek.

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Not disclosing Effective Interest Rates (EIR)

In Singapore, licensed moneylenders must explain all loan details, including repayment, interest rates, and fees. A written contract detailing these conditions is legally required, ensuring you fully understand the loan's impact.

Conversely, unlicensed lenders often lack transparency, leaving borrowers uncertain about the actual financial commitment they are undertaking. They might offer vague verbal agreements or contracts with missing details, unlike licensed entities that provide clear, detailed contracts. 

If a lender avoids disclosing the EIR or hides crucial information, it signals a potential predatory practice, urging caution and avoidance. Remember, a trustworthy lender prioritises clear communication and adheres to regulatory disclosure requirements.

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Effortless approvals

Illegal money lenders often attract borrowers with the promise of quick and easy loan approvals, bypassing the stringent checks required by regulated entities. This practice not only targets those in desperate financial situations but also places them at greater risk of unsustainable debt due to exorbitantly high interest rates and hidden fees.

Here’s how some unlicensed lenders operate:

• They often promise instant loan approval without credit checks, exploiting the urgent financial needs of borrowers.

• To compensate for the heightened risk, these lenders charge exorbitant interest rates, far exceeding the standard caps set by regulatory bodies.

• Loans might include onerous terms such as balloon payments or lump-sum payments that significantly increase the repayment burden.

• Unlicensed lenders may encourage a cycle of borrowing that becomes difficult to escape.

In stark contrast, licensed moneylenders in Singapore are obligated to conduct face-to-face verifications and provide clear, comprehensive loan agreements. They must operate within the regulatory frameworks, ensuring all terms, including maximum allowable interest rates and any other fees, are transparent and fair. 

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Invisible credit building

Loans from unlicensed lenders do not contribute to building your credit score, as these entities do not report to credit bureaus. This means any attempt to improve your financial standing through repayment history will go unrecognised in the eyes of the law and future financial institutions. It’s crucial for anyone looking to enhance their credit profile to deal only with licensed lenders whose credit reporting practices can help strengthen your credit history over time.

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Monitoring lender reputation

Always check the track record of a lender and determine if they are on the list of licensed moneylenders before engaging in any loan agreement. In Singapore, the police and the Ministry of Law keep a close eye on unlicensed moneylending activities and regularly issue warnings about the runners and unlicensed moneylending businesses being investigated and the consequences that offences will face if found guilty. These constant crackdowns are often indicative of broader issues, such as fraudulent practices.

Unlicensed money lending, often synonymous with coercive loan practices, continues to plague Singapore with its unlawful operations. 

An alarming example occurred in November 2024, where a significant crackdown on such activities led to the arrest of a 49-year-old man. This individual, running a company named Xpress Leasing, was apprehended for alleged involvement in unlicensed moneylending and money laundering, with over S$700,000 seized by authorities.

Xpress Leasing masqueraded as a legitimate business, offering cash in exchange for pre-owned mobile phones, only to ensnare individuals in high-interest loans under the guise of leasing agreements. Reports detailed that the company would purchase a phone for a deceptively reduced sum, subtracting a significant portion as a 'rental fee,' then charge exorbitant monthly rates. Victims, often in desperate need of cash, were misled by these terms and later harassed by debt collectors if they failed to comply with the steep repayment plans.

These operations don't just stop at misleading contracts; they extend their reach through aggressive and often terrifying tactics to ensure repayment. According to Channel News Asia, 'Ah Longs'', or unlicensed lenders, have adapted to the digital age, using social media and text messages to intimidate debtors, with some going as far as to harass individuals at their workplaces or employ "runners" to exert pressure through public shaming or direct threats.

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Before securing any loan in Singapore, always calculate the EIR. Use our calculator to determine the true cost.

In Singapore, safeguarding your financial well-being hinges on borrowing solely from legitimate, licensed lenders. This ensures fair loan terms, transparent practices, and protection under Singaporean law. 

As mentioned, unlicensed moneylenders, or loan sharks, operate outside these regulations, posing significant risks. To protect yourself, always verify a lender's license through the Ministry of Law's official list. If you suspect illegal lending, report it to the authorities and consider these alternatives:

• Licensed moneylenders: Always cross-check their license on the Ministry of Law's website.

• Personal loans from banks: Banks offer regulated terms, competitive rates, and extended repayment options for personal loans, payday loans, and alternative loans.

• Credit cooperatives: These member-owned organisations may offer loans with favourable terms, often providing alternatives to traditional bank loans with potentially lower interest rates.

• Family or friends: While a potential source of aid, ensure clear, written agreements are in place to avoid misunderstandings.

• Government assistance programmes: In cases of severe hardship, explore government assistance programmes for financial support.

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