Personal Loan Fees – What’s Legal?
The decision to apply for a personal loan is not an easy one for most people. Whether you are applying for your first loan or your tenth, it pays to be informed about the relevant fees and charges.
Legal Fees and their Limits
We have summarised all the guidelines pertaining to loan fees, as set by the Ministry of Law, for your reference. There are five discrete factors that affect what your loan will cost you.
1) Interest
Interest will likely be the single largest charge that you pay above the loan principal. Singapore law caps the basic interest on loans from a licensed money lender at 4% of the principal loan amount per month.
For example, the interest on a $500 loan will incur $20 in interest every month. If you do not make any additional payments to service the loan, your interest the following month will also be $20 and the total amount owed will remain at $500.
2) Administrative fees
An administrative fee is a one-time cost that a money lender charges when you first apply for a loan. It covers their expenses in processing the paperwork for your application.
When applying for personal loans, normal income applicants will be pleased to know that administrative fees are capped at 10% of the loan principal. For example, if you apply for a $500 loan, the administrative fee total cannot add up to more than $50.
3) Late payment fees
If a borrower misses a payment but is able to pay it later, they are liable for fees in addition to the loan interest. This is to cover the cost of paperwork and administrative expenses, including the time and effort spent in pursuing the initial payment that was due.
However, late payment fees are capped at $60 per month, regardless of the loan principal.
4) Late payment interest
Money lenders are allowed to charge additional interest on late payments from the borrower as well. However, this interest is restricted to 4% of the payment due for that month, not the entire outstanding amount.
For example, the agreement for a $500 loan may stipulate repayment of $20 per month. If the borrower misses that $20 payment, the late payment interest will be charged at 4% of the $20 (which is $0.80), not 4% of $500 (which is $20).
5) Cumulative fee total
We have looked at all the various fees and charges that a lender may charge you over time. While each of those charges has a legal limit of its own, there is a cumulative upper limit as well; their combined total cannot exceed twice the amount loaned.
For example, if you borrow $500, the total amount that you have to repay, inclusive of all the charges listed above added together over the course of the repayment, cannot be greater than $1,000.
Your Right to be Informed
A licensed money lender is obliged to inform you, both verbally and in writing, of the loan terms as well as all applicable fees and charges.
- This information must be provided to you in a language of your choosing. Most lenders will be able to do this in English, Chinese, Malay and Tamil; those that cater to foreign workers can provide them in other languages as needed.
- You must receive a signed copy of the loan contract which lists all the clauses for the payment schedule, interest chargeable, and all other miscellaneous expenses.
- In addition to the paperwork, the lender must also issue you a physical copy of a cautionary statement.
Synergy Credit’s Final Word
Even if circumstances have put you in a difficult financial position today, you can minimise any long-term impact by understanding how loan fees and charges work. Before you apply for personal loans online, take a minute to understand which ones are legal and which are not.
Please note that the Ministry of Law amends legal definitions and details when such changes are deemed appropriate. We update our website as and when we are informed of these changes. Always check back to this page before you sign on the dotted line. You may also contact Synergy Credit directly at any time for advice.
- Phone: 6250 0066
- Email: [email protected]
- Address: Blk 447 Clementi Avenue 3 (Clementi Central) #01-201 (5 min walk from Clementi MRT)
