Posted on 2015-03-09
Have you ever experienced borrowing money from a bank and got denied? Where do you turn to? A loan shark perhaps?
In our modern society, there are different institutions involved in money lending, but in Singapore money lending is regularized by their law. Money lenders need to submit requirements and be approved before building their business which caters to emergency cash needs of regular employees. But what is the difference between a licensed money lender and a loan shark? Or what makes a Singaporean resident borrow money from a licensed money lender instead of a bank?
Before we proceed, let’s define what a loan shark is.
A loan shark is a person who is into money lending with tremendously high interest rates. Oftentimes, loan shark enforces repayment with the use of blackmail or threats of violence.
In Asia, particularly in Malaysia and Singapore, Ah Long is a slang term for loan shark. They offer loans to people who are not granted to get money from any legal institution like banks. Most often than not, their target are gamblers. The interest rate in their unbelievable and illegal money lending business is around 40% a month.
If a debtor fails to pay in time, Ah Long will spray paint or write threats on the wall of a debtor’s house. Usually, the characters “O$P$ will be included, which means “owe money, pay money.” Or they hang pig’s head outside a debtor’s house, which is a way of intimidation.
While loan sharks use humiliation as a letter of reminder, Licensed Money Lenders are somewhat different. Yes, they are also in the money lending organization however the only difference is – manners.
They don’t do it like Ah Longs do.
Licensed Money Lenders call themselves businessmen. They want to create a good reputation in money lending, and wouldn’t want to scare clients and be arrested by authorities.
Their money lending company is regulated and permitted by the Law of Singapore under Ch.11.2.3 Section 2 of The Law of Credit and Security, Commercial Law.
So what makes a licensed money lender different from a bank?
There are few reasons why Singaporeans prefer to borrow money from a licensed money lender than a bank:
- Small loans. Money lending to small entrepreneurs or people who need payday loans or unsecured loans are the target of this group. Money needed to pay electricity bills, gas fees and getting your car fixed are some examples. Licensed money lenders are not an option for large corporations or businesses that need extra funds.
- Faster Transaction. In the money lending industry, people know how long the process in getting loans from banks; as they will check your credit score. With licensed money lenders, since small amount of cash is involve, your loan can be approved within 30 minutes.
- Credit Assessment. When you pay your credit card late, your credit score will go down. In the case of licensed money lenders, they are less finicky about it. The reason to this is that they target people who cannot apply for a bank loan due to low or poor credit score. Of course in any type of money lending businesses, there are limits. Money lenders will have to reject an application if:
- A person still has outstanding loan from another money lender
- A person has a significant or large sum credit card debt
Another point here is money lenders can give loans to former bankrupts if and when they present a letter of discharge. They also do background check like any bank will normally do, but it is not that detailed.
Money lending business is growing in Singapore as many residents are living in a “paycheck to paycheck” world. There are times where their salary is not enough to cover all the bills.