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How To Identify A Legal Money Lender From An Unlicensed One

woman handshaking a business man

At some point in life, you might face a shortage of cash to fund your everyday needs or settle an emergency expense. Taking out a bank loan may not be as convenient due to the paperwork and waiting period. Thus, most people turn to money lenders who can provide easy and quick cash loans in Singapore.

However, it is in your best interest to know the lender you are borrowing from is licensed. This can help you stay away from any unscrupulous activities and add on to your stress during the repayment process. To ensure that you are securing a loan safely, you should be able to distinguish a reliable legal money lender from an unlicensed one, also known as a loan shark.

What is a loan shark

A loan shark is a street term for an unlicensed money lender. They do not necessarily adhere to the rules and regulation set by the Ministry of Law when it comes to money lending. The Monetary Authority of Singapore constantly issues warnings that anyone in need of a loan should guard themselves against unlicensed money lenders, lest you be subjected to costly fees, inflated interest rates and potentially face intimidation from them.

How to tell that you are dealing with a loan shark

The last thing you need while dealing with your finances is falling into the trap of a loan shark and facing significant stress. So, how can you distinguish a legal money lender from an unlicensed one? There are certain features that should raise suspicions about your money lender – here are a few things you should look out for.

Be wary of very easy loan application processes

As much as companies aim to make money lending an easier and convenient process, it should be done logically. For instance, your lender should seek to verify your documents thoroughly. If you are able to secure a loan through an application that is suspiciously too easy, you may be dealing with a loan shark. There are legitimate fast approval loans that still require verification and eligibility, such as payslips and income tax statements – but the quick loan process can be used by scammers to lure desperate borrowers.

Excessive soliciting of loans should be a warning

Another characteristic of loan sharks is being pushy and adamant in their communications. You might constantly receive text messages, calls, emails or any other method to pursue you to obtain a loan from them. Legal money lenders in Singapore are prohibited from soliciting loans via phone calls or text messages.

When loan conditions change

This is done so they can solicit more funds from you. You might find that your loan amount continues to increase even as you are making regular repayments. When borrowing from a licensed money lender, the agreement has stipulated terms and conditions that both parties have to abide by. You should be able to see the interest charged, repayment period and other fees clearly indicated on the agreement – avoid lenders that present you with incomplete or blank contract.

What to expect from a licensed money lender

A list of licensed money lenders in Singapore can be found in the Ministry of Law’s website. They carry out the business of moneylending according to the Moneylenders Act. Certain practices are prohibited, such as the use of abusive or threatening language, granting a loan without exercising due diligence or failing to give a signed copy to the borrower, and asking for your personal login details and password (for example, SingPass).

Fair market rates

The maximum interest rate is set by the Singapore government. Money lenders are required to adhere to charging a max of 4% interest rate on top of the principal amount that borrowers need to settle. Unlicensed money lenders can overcharge borrowers up to 40% interest rate, which is clearly unacceptable by the law.


The money lender is required by law to present the terms and conditions of the loan contract clearly, in a language that is understood by the borrower before any loan is granted. There should be transparency in the loan terms which include details on the interest rate, repayment period, late interest charges, and installment payment options.

Limited loan amount

Legal money lenders comply with the Singapore law, which dictates there is a limit on how much you can borrow. This is calculated based on your income. If you come across a lender who can provide you with a significantly higher amount that goes over the loan amount for your income bracket, this is a red flag.

Legitimate lenders will offer a consultation for you to understand more about the loan you are seeking. They will also work with your financial situation to tailor-made a suitable loan package that can meet your financial obligation and allow comfortable repayments.

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