When you find yourself short on cash and you need to buy your basic needs and settle bills, finding someone who will be willing to lend you the help you so desperately need can feel like you have found a savior. At the same time, you should know that borrowing money can easily turn into a dangerous situation, especially when the risks are not that obvious.
Naturally, you would want to get your funds fast, but hold your horses. Research and give yourself some time to think it through. Engaging a money lender should be a well-thought-out decision.
You might be wondering why this is the case, especially since you are the one borrowing money anyway. The risks should be with the lender, right? After all, what if you decide not to pay or vanish after getting the loan proceeds? While these risks do exist, there are also a lot of risks that come with borrowing money.
Not all money lenders are the same. Aside from the differences in loan terms, there’s also the danger that you might unknowingly borrow from a loan shark. In light of these considerations and risks, here are some things to consider when choosing a money lender.
1. Compliance with relevant laws
In Singapore, moneylenders are required to be listed in the Ministry of Law (MinLaw)’s Registry of Money Lenders. To be on the safe side, consult MinLaw’s list and select a moneylender from there. This will help you avoid scams and moneylenders engaged in unscrupulous practices. It will be counterproductive to engage a moneylender only to find out later that they are unlicensed.
A crucial benefit of engaging a licensed moneylender is that you have an assurance that they will not use unfair debt collection methods and will be transparent about fees. They are also expected to protect the personal data that you disclose to them. This is part of the requirements for licensed money lenders.
Another indicator of whether you are transacting with a licensed money lender is the channels they use in advertising their loan products and reaching out to you. Licensed money lenders are required by MinLaw to market and promote their products only through printed or online business and consumer directories, their websites, and advertisements placed within or outside their offices. So, if you received an offer through Whatsapp or Messenger, be wary and investigate before you reply.
2. The reputation of the money lender
One of the important things you must know before committing to a loan obligation is the payment collection practices of the money lender. Some money lenders employ unscrupulous ways of collecting debt such as calling the debtor’s family, friends, and even work colleagues or using abusive language and threats to force the debtor to pay the debt. You might be risking not only your reputation in the community, but even your and your family’s safety if you do business with a loan shark.
Ask the money lender you are considering if they are registered and licensed as money lenders. Request to see a copy of their license and other relevant documents. Asking upfront will help you stay away from illegal and illegitimate lenders. This will also decrease the chances of unknowingly doing business with a loan shark.
3. The money lender’s past transactions
It helps to research this first before going ahead with a loan application. Naturally, you will not be able to get unbiased information from the money lender. Since lending money is their business, they would want you to choose them. In doing so, they will only tell you about the good experiences of past borrowers. You cannot expect them to share with you instances when someone did not pay the debt, unless, of course, they want the story to serve as a warning to you.
The easiest way to do this is through online searches and online communities. However, you should also be vigilant and check if what you are reading is a real review or is actually a marketing or promotional post. You can evaluate by asking yourself if the person posting the article would benefit from such post. Then you can do a background search of the organization or money lender mentioned. If all posts you find about the money lender are positive or too good to be true, this might be a red flag.
4. The terms and conditions of the loan product offered
Always opt to have a written agreement signed by the money lender and you. Terms should be written down to avoid forgetting key details. This will also come in handy in case any dispute arises.
Also, don’t ever skip reading the fine print. While it may feel burdensome and unimportant now, you will thank yourself later. Take the time to read all the obligations you are agreeing to and do not get discouraged if the sentences sound complex. Do not hesitate to ask the money lender to explain the terms to you in words that you will understand. The simpler, the better. If the money lender cannot do this, chances are, they do not know their product or they are deliberately making things complicated. Even if the money lender seems trustworthy, it is the basic responsibility of the borrower to do due diligence and to understand the terms of the loan.
5. Interest rates and penalties
Do not expect to get the full amount of the loan proceeds. Generally, money lenders charge transaction and processing fees before releasing the money to the borrower.
Even if you are sure that you will not default on your payment obligation, it is still best to ask the money lender what the penalties and charges are in case you do not make it on time. Life is full of surprises. You do not know what your situation will be after a few days.
6. Advice and recommendations from people you can trust
You may also opt to ask people you trust. Inquire from family and friends who have experience in borrowing money. They might recommend money lenders who can offer you lenient payment terms. Experience may be the best teacher, and you do not need to have these bad lending experiences themselves. Instead, learn se from others who have come before you.
In conclusion, borrowing money can make your financial situation better or worse.
It is up to you how you can turn the difficulties you face today into opportunities for character growth. Familiarize yourself with applicable rules and regulations before committing to a loan obligation. Be responsible for protecting your future self and your family from loan sharks. Often, it only takes a few hours of research and reading applicable material.