Adulting is hard. It’s not nearly enough to get a job, manage your bills, and remain debt-free.
You also have to save for major life changes such as marriage, a baby (if you’re planning for one), house renovation, as well as ensure that you have an emergency fund for unexpected events.
When you’re suddenly confronted with an urgent lack of cash, most people turn to the banks for a personal loan, but if you’re faced with restrictions, you may be wondering if licensed moneylenders can help you with cashflow.
But what exactly are the differences between these 2 options, and which one should you turn to when you’re strapped for cash? Let’s take a closer look.
Licensed Moneylenders vs Banks
- Licensed moneylender vs loan shark
- Personal loans from bank vs licensed moneylender
- When should you choose a licensed moneylender?
But first, is a licensed moneylender the same as a loan shark
No, they’re completely different.
Loan sharks, or “ah long,” operate illegally, charging exorbitant interest rates and using intimidation tactics like harassment, vandalism, and even threats of violence to recover debts.
Licensed moneylenders, however, are regulated by Singapore’s Ministry of Law. They must follow strict rules on how much they can lend, the fees they charge, and the maximum interest rates allowed. They are also prohibited from using harassment or coercion to collect payments.
How do you know if your moneylender is licensed? You can find a full list of licensed moneylenders on the Ministry of Law’s website. As of Feb 2025, there are 153 licensed moneylenders in Singapore. This list changes, so before you take a loan, check the website again to make sure that your moneylender’s license is still valid.
However, if you’re considering a bank loan, you can explore some of the best personal loans here.
Personal loans from bank vs licensed moneylender
Now that we’ve covered the legality of borrowing from licensed moneylenders, let’s explore the key differences between borrowing from them and from banks.
1. Ease of borrowing
Generally, licensed moneylenders are faster than banks when it comes to loan approval. Loans can be approved within 24 hours, while banks may take several days and sometimes weeks (though some offer instant approval loans).
Why the difference? Licensed moneylenders have lesser requirements, leading to quicker processing. Here’s a quick comparison:
Licensed Moneylenders:
- Credit score: More lenient
- Collateral: Not required for most loans
- Annual income: Can borrow up to S$3,000 if annual income is below S$20,000 (for Singaporeans and PRs)
Banks:
- Credit score: More emphasis on credit history; loans may be denied for low scores
- Collateral: May be required for larger loans
- Annual income: Not eligible if income is below S$20,000
Overall, banks tend to have longer processing times, especially for larger loans. If a bank rejects your application, it’s usually because you didn’t meet one of their criteria.
2. Interest rate
Licensed moneylenders generally charge higher interest rates compared to banks, primarily to offset the increased risk of lending to individuals with poor or no credit history. As of 2015, they are allowed to charge a maximum interest rate of 4% per month. This rate is calculated on the remaining principal after each payment, meaning the quicker you repay, the less interest you will incur.
In contrast, banks offer lower interest rates, typically ranging from 2.49% to 5.54% per annum. While they consider factors such as your credit history, income, and loan tenure, their rates are generally more favorable compared to licensed moneylenders.
3. Loan amount
Licensed moneylenders typically offer small loans, ranging from a few hundred to S$3,000, depending on your income. If you earn over S$20,000, you can even borrow up to 6 times your monthly salary.
Banks offer higher loan amounts, starting at S$10,000 or up to 10 times your monthly salary.
4. Loan Tenure
Licensed moneylenders typically offer shorter loan tenures, usually ranging from 1 to 2 years. While this leads to higher monthly payments, the total interest paid could be lower since the principal is repaid more quickly.
In contrast, banks generally provide longer repayment periods, with personal loans offering tenures of up to 5 years. This gives borrowers more flexibility, allowing them to reduce their monthly payment amounts over time.
5. Consequence of defaulting
Defaulting on loans with licensed moneylenders and banks leads to similar consequences, though banks may take slightly more severe actions. Both will result in late payment fees, interest, and a negative impact on your credit score, making it harder to secure future loans. However, banks may go a step further by using the funds you have with them to offset your debt.
Most importantly, both banks and licensed moneylenders are legally allowed to engage debt collectors. These guys are trained to pressure you into repaying your debts while staying on the right side of the law. And they can be pretty scary even if they’re not technically breaking the law. Here’s what debt collectors can and can’t legally do.
At a glance
Here’s a table that sums up the main differences between banks and licensed moneylenders.
| Licensed Moneylenders | Banks | |
| Ease of loan | Fewer requirements | More requirements |
| Interest rate | Ranges from 1-4% per month, capped at 4% | Ranges from 2.49% to 5.54% p.a. |
| Loan amount | Up to 6x monthly income | Up to 10x monthly income |
| Loan tenure | Ranges from 12-24 months | Ranges from 1-5 years, sometimes even longer |
| Consequences of defaulting | Late payment fees, interest, and negative credit score | Late payment fees, interest, negative credit score, and possible seizure of funds from your account |
When should you choose a licensed moneylender?
Choose a licensed moneylender if:
- You need a small amount of cash quickly for an emergency.
- You’ve been rejected by banks multiple times due to a low credit score or poor credit history.
- You don’t have collateral.
Choose a bank if:
- You need to make a large payment, such as for renovations or a car purchase.
- You have a good credit score and don’t need the cash urgently.
- You want lower interest rates and longer repayment periods.
In short, licensed moneylenders are ideal for small, urgent fees while banks are preferable for larger, less urgent purchase.
Personal loans, whether from banks or licensed moneylenders, carry a higher interest rate, and should only be used as a last resort. If you frequently find yourself having to turn to licensed moneylenders because of cash flow issues, it may be time to review your budget and explore ways to improve financial stability, such as adjusting expenses or seeking additional income sources.
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About the author
Tay Jin Heok aspires to join the ranks of financial titans like Scrooge McDuck and Mr. Krabs, though he’s still perfecting their knack for turning pennies into fortunes. A self-proclaimed personal finance enthusiast, he has generously decided to share his insights into the money world with his readers. When he’s not demystifying finance, you’ll find him sweating it out in online multiplayer games or scrolling aimlessly through social media.
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