New regulations to cap the cost of borrowing from licensed money lenders will kick in on Thursday (Oct 1), announced the Ministry of Law (MinLaw). The new regulations will also require money lenders to calculate interest on a reducing balance basis for personal loan.
In a news release on Wednesday loans will be subject to the following caps:
- An upfront administrative fee of not more than 10 per cent of the loan principal
- Interest of not more than 4 per cent per month
- Late interest of not more than 4 per cent per month
- Late fee of not more than S$60 per month
- Total borrowing cost of not more than 100 per cent of the loan principal
The caps will not apply to loans granted to businesses which have been registered for at least two years before the grant of the loan. They will also not apply to loans granted before Thursday.
Currently, an individual earning less than S$20,000 annually can only borrow a maximum of S$3,000 in unsecured loans. According to MinLaw, the new regulations are aimed at protecting borrowers who may have no alternative but to go to licensed moneylenders.
The changes come after the Government accepted 12 out of 15 recommendations made by the Advisory Committee on Moneylending in May this year. MinLaw says that the three remaining recommendations will be reviewed later on.
Speaking to Channel NewsAsia, the Moneylender’s Association of Singapore says the new rules have caused apprehension among members. However, the association has issued a circular to members urging members to abide by the new requirements.