A Guide To Licensed Money Lender Interest Rates In Singapore

A Guide To Licensed Money Lender Interest Rates In Singapore



A Guide To Licensed Money Lender Interest Rates In Singapore
A Guide To Licensed Money Lender Interest Rates In Singapore

Before taking up a loan, it is important to understand the loan terms —especially licensed money lenders’ interest rates— which determine how much you need to repay throughout the period of the loan tenure.

Always remember, money lender interest rates in Singapore vary from lender to lender, and depend on factors like a borrower’s requested loan amount, income and loan tenure. If you happen to have a good credit score, the lender will likely offer you a lower-than-average interest rate even if you’re planning to take out a huge loan or a short-term loan.

So, how do private money lenders’ interest rates work on a loan? Legalised money lenders in Singapore charge reducing interest rates instead of flat interest rates. And this brings us to our next question — how does a loan calculator reducing balance formula work?

Whether you’re looking for the lowest interest rates from licensed money lenders in Singapore or learning how to calculate interest rates — we’re here to help. Here, we share all you need to know about money lender interest rates, the different loans and interest rates offered, the difference between legal lenders and banks, and how to calculate interest amounts.

How does licensed money lenders’ interest rates in Singapore work?

Before granting a loan to a borrower, a licensed lender will first need to evaluate the risks involved and see if a borrower is financially capable to repay a loan.

To reiterate our point earlier, money lender interest rates in Singapore vary and depends on different factors:

  • Borrower’s yearly income
  • Loan sum
  • Loan tenure

Money lenders’ interest rates in Singapore: What are the numbers to know?

Monthly interest rate and late payment interest rate

Usually, licensed money lenders’ interest rates in Singapore vary between 1% and 4%. Private money lenders’ interest rates are capped at 4% monthly, calculated based on your outstanding balance, which means the interest sum is calculated based on the remaining loan amount owed.

To put things into perspective, if a borrower takes out a loan of $9,800, and he/she has repaid $5,000, only the remaining $4,800 can be taken into account for calculation of interest.

Private lender interest rates for late payment are capped at 4% monthly as well. The sum you owe in interest is calculated according to the missed instalment, not your original sum or your outstanding balance.

To illustrate this clearly, if a borrower takes out a loan of $15,600 with a loan tenure stretching across 12 months, and didn’t manage to pay the first instalment of $1,300, the money lender is only permitted to charge the late interest accrued on $1,300, but not the outstanding $14,300 sum as it’s not due yet.

Other chargeable fees by licensed lenders

Legal lenders must only follow the regulated fees set by MinLaw, and are only permitted to impose the below charges and expenses:

  • Late repayment fee: Not more than $60 for every month of late repayment
  • Loan administration fee: Not more than 10% of the principal loan
  • Legal fees: If granted by the court, a legal lender may request for the legal costs incurred from taking a borrower to court if he/she was unable to repay their loan

Additionally, take note that there’s a cap on total interest and fees licensed lenders can charge. For example, if a borrower takes out a loan of $5,000, the accrued interest, late interest, up to 10% administrative charges and $60 late repayment fee (per month) cannot go beyond $5,000.

Interest rates in Singapore: Licensed lenders Vs Banks

Licensed lenders Banks
Interest rates Up to 4% monthly 2.88-5.54% annually
Loan amount Up to 6 times of monthly salary Up to 10 times of monthly salary
Loan tenure Shorter loan tenure — up to 12 months Longer loan tenure — up to 7 years
Regulation Regulated by the Registry of Moneylenders (ROM) under the Ministry of Law Regulated by the Monetary Authority of Singapore (MAS)
Credit report assessment Subject to Loan Information Report by the Moneylenders Credit Bureau (MLCB) Subject to Credit Report by Credit Bureau Report (CBS)
Speed Quick, from 30 minutes up to a few hours 1-2 days
Lending standards Low — not too concerned about credit history but is more focused on your ability to repay the loan High — Strict application procedure and requires a good credit score

What are the different kinds of loans you can take?

  1. Car loan: Also known as an auto loan, a car loan is a loan that helps you to pay for the cost of your car, up to 60-70% of the car’s open market value.
  2. Housing loan: Also called a home loan or mortgage loan, a housing loan is meant to help you pay for property purchases spread over years or decades.
  3. Personal loan: One of the most flexible loans, a personal loan can be used for any and every situation you can think of.
  4. Bridging loan: A bridging loan is a short term loan used for paying the downpayment of your new property purchase while you await the sale proceeds from your existing property.
  5. Renovation loan: A renovation loan can only be used to pay for renovation works. It cannot be used to purchase home furnishings like furniture, fittings, curtains, mattresses, and household appliances.
  6. Business loan: A business loan can be used for a variety of purposes, such as scaling up business operations, buying equipment, managing cash flow issues, and so on.
  7. Study loan: Also known as an education loan or student loan, a study loan is used to pay for the cost of ​​a student’s tertiary education.

What are the interest rates of different types of loans?

Here are the various interest rates offered by different financial institutions for different types of loans:

Types of loans Types of interest rates Interest rates with banks or other financial institutions Interest rates with licensed money lenders
Car loan Flat rate 2.48% – 2.78% p.a. 1-4% per month
Housing loan Reducing rate 3.05% – 4.64% p.a. 1-4% per month
Personal loan Reducing rate (licensed moneylenders) or flat rate (banks) 2.88% – 5.54% p.a. 1-4% per month
Bridging loan Flat rate. Full principal amount is repaid when sale of property is completed. 5% – 6% p.a. 1-4% per month
Renovation loan Flat or reducing (depends on bank) 4.08% – 5.88% p.a. 1-4% per month
Business loan Flat or reducing (banks use reducing rates, while other financial institutions use either) 4% – 12% p.a. 4-12% per month
Study loan Flat or reducing (depends on bank) 4.5% – 5.20% p.a. 1-4% per month

What is the difference between annual interest rates and effective interest rates?

Do note that the annual (advertised) interest rates and effective interest rates aren’t the same.

The annual interest rates are the interest rates that banks and financial institutions advertise. On the other hand, effective interest rates (EIRs) factor in other costs like administrative fees, processing fees, and transaction fees. This is why the EIRs are almost always much higher than the annual interest rates.

Long story short, pay attention to the EIR when shopping around for a loan. When it comes to licensed money lenders’ interest rates in Singapore, take note they already reflect the EIRs!

How does interest work on a loan?

Understanding how a loan is calculated can be tricky as some loans use a flat interest rate while others use a reducing rate.

What is the reducing balance formula?

This method calculates interest payments on the outstanding principal balance instead of charging a fixed flat interest based on your original loan amount.

This means that as you pay off your loan gradually, your outstanding loan amount reduces and the interest you need to pay reduces as well.

How to compute interest based on a reducing balance formula?

Fret not, you can work out your sum easily using a loan calculator with a reducing balance formula if you’re having trouble manually computing interest calculated based on reducing interest rates. This way, you can see which financial institutions or licensed money lenders with the lowest interest rates in Singapore offer the best bang for your buck.

Reducing Loans: Important things to take note

When it comes to loans in Singapore, there are three types of reducing loans you need to know: (i) daily-, (ii) monthly-, and (iii) annually-reducing loans.

EMI refers to equated monthly instalments (i.e. fixed payments for paying off the loan in full over the loan tenure).

Repayments for reducing loans are made in equated monthly instalments based on the following formula:

EMI = p *((r *(1+r)^n))/((1+r)^n-1)), where:

  • p = principal amount borrowed,
  • r = monthly interest rate, and
  • n= total number of monthly payments


Example 1: Ben borrows $200,000 at an interest rate of 3.5% for 10 years.

Flat rate method

EMI = $200,000 + ($200,000*10*0.035))/ (10*12) = $2,250

Reducing balance method (monthly)

EMI = $200,000*((0.0029*(1+0.0029)^120)/ ((1+0.0029)^120-1)) = $1,978

From the two calculation methods shown above, you can see that the reducing balance method is the more cost-effective option. If your loan is calculated based on the flat rate method, you may wind up paying more interest in the long run.

Example 2: Here’s a $6,000 loan with a 7% interest rate over a 12-month tenure, calculated using the flat rate method and a monthly-reducing balance method.

Reduced balance calculation (using a loan calculator with reducing balance formula):

Loan Calculator
Installment amount : S$
Total you need to pay : S$
Month Payment Interest Principal Balance
1 519.16 35.00 484.16 5,515.84
2 519.16 32.18 486.98 5,028.86
3 519.16 29.33 489.83 4,539.03
4 519.16 26.48 492.68 4,046.35
5 519.16 23.60 495.56 3,550.79
6 519.16 20.71 498.45 3,052.35
7 519.16 17.81 501.35 2,550.99
8 519.16 14.88 504.28 2,046.71
9 519.16 11.94 507.22 1,539.49
10 519.16 8.98 510.18 1,029.31
11 519.16 6.00 513.16 516.16
12 519.17 3.01 516.16 0.00

Total reduced rate interest: $229.93

Flat rate calculation:

Month Payment Interest Principal Balance
1 535.00 35.00 500.00 5,500.00
2 535.00 35.00 500.00 5,000.00
3 535.00 35.00 500.00 4,500.00
4 535.00 35.00 500.00 4,000.00
5 535.00 35.00 500.00 3,500.00
6 535.00 35.00 500.00 3,000.00
7 535.00 35.00 500.00 2,500.00
8 535.00 35.00 500.00 2,000.00
9 535.00 35.00 500.00 1,500.00
10 535.00 35.00 500.00 1,000.00
11 535.00 35.00 500.00 500.00
12 535.00 35.00 500.00 0.00

Total flat rate interest: $420.00

From the two tables above, we can see that with a reduced rate calculation, you pay less interest in total.

Loan Calculator

Don’t worry if all these calculations seem daunting. Fret not, use our free loan calculator to easily work out the interest amount on your loan.

Loan Calculator
Installment amount : S$
Total you need to pay : S$

Why is it important to use a loan calculator before you take up a loan?

Using a loan calculator gives you a better idea of the amount of interest you are expected to pay, depending on how interest is being calculated on the loan you are taking, and how much you need to repay with each repayment.

This will help you with your monthly budgeting, so you can plan how much to set aside each month for your loan repayment. Plus, it helps you assess if you are able to repay your loan on time.

Late fees and interest charges apply if you repay your loan late, so it’s important to check if your repayment schedule and repayment amounts are still manageable.

How to ensure you’re not dealing with an illegitimate lender

Verify the lender’s legitimacy

Check MinLaw’s registry and the lender’s official website for these following details — licence number, physical address, and registered landline.

Face-to-face verification with lender

Never engage in any remote loan approval or loan disbursement.

Always visit the lender’s office with your documents to sign a loan contract, and ensure it includes key details like the loan amount, interest rates, late interest rates, late payment fees, repayment terms, and loan tenure. The licensed lender is also required to run through the loan contract with you and ensure you’re fully clear of all the terms and conditions.

Check the advertisement channel

If you receive advertisements via emails, phone calls or text messages, it’s most likely a loan shark or illegal lender that you’re dealing with. Licensed lenders are only permitted to advertise through three channels: consumer or business directories (either in online/print media); websites owned by the lender; advertisements placed inside or outside of the lender’s business premises.

Watch out for any threatening or suspicious behaviour

Licensed lenders must always follow the rules and regulations by MinLaw and treat borrowers with utmost respect and honesty. If you ever encounter the below red flags, you’re either dealing with an illegal lender or a licensed lender flouting the rules:

  • Asking for personal details, such as your SingPass ID and/or password
  • Refusing to return your NRIC or other personal ID documents
  • Getting you to sign a blank/incomplete loan contract
  • Granting you a loan without issuing any loan contract
  • Holding on to your principal loan amount

If the money lender seems to be using abusive language, this could be a sign of licensed money lender harassment. When you find yourself in such a situation, contact the police immediately. Alternatively, you may also lodge a complaint online through MinLaw’s website or by contacting the Registry of Moneylenders at 1800-2255-529.

Why take a loan with a licensed lender?

If you are looking for short-term loans or urgent loans with up to 12 months to repay your loan in full, licensed lenders in Singapore are your best bet, as they have less stringent credit checks and offer faster approvals. Legal lenders are also flexible enough to offer loans for bad credit as they don’t look at your credit score, but your ability to repay a loan. And if you dig hard enough, you can definitely find money lenders with low interest rates.

At Prosper Credit, we offer fully customised loans with interest rates starting as low as 2.88% per month. We’re also a 24-hour money lender in Singapore, so you can apply for loans at any time on our website. We provide personal loans, business loans, monthly loans, and so much more. Simply reach out to us and we’ll assist with your loan enquiry soonest.

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While all reasonable efforts are made to include accurate and up-to-date information on this website, errors or omissions may still occur. We are not liable for any loss or damage caused by the use of this website. The information on this website is for general information only and should not be taken as professional advice.