When it comes to getting a loan, two of the major sources that people use are banks and legal money lenders.
In Singapore, there are similarities and significant differences between both institutions when it comes to getting a loan.
Banks are traditional lending institutions that people have used for many decades, particularly when it comes to large loans such as those that start up businesses or buy a house. A money lender however is a more recent phenomenon, particular when it comes to the licensing of these small businesses.
The similarities are substantial in that both institutions will loan money to their customers and they both have somewhat similar application processes. If you want to get a payday loan for example to pay off an unexpected expense, you can go to both institutions and try to obtain the money that you need.
The Differences between Licensed Money Lender and Banks
Where there are some similarities between both institutions, there are some significant differences as well.
The most obvious difference between money lenders and banks can be found in the number of different services that they offer. Banks are places where customers may hold their money safely, get loan, invest and enjoy a myriad of other services while a licensed money lender really only offers loans and perhaps does some check cashing as well.
Even when it comes to their lending practices, there are substantial differences between Singapore banks and money lenders. Here are four of the biggest differences that you will need to consider before trying to obtain a loan.
Size of Loan:
Generally speaking, a licensed money lender will focus on smaller amounts of loans. There are a number of reasons for this, but the most common one is that such lenders run smaller institutions that serve a particular need of the public. Banks are rather cumbersome institutions when it comes to lending money for a payday loan simply because they use the same approval structure as for a mortgage or a business start-up loan.
Instead, the legal licensed money lender in Singapore has generally built their business in loaning relatively small amounts of money for people who need quick cash to pay off an unexpected bill such as repairing their vehicle for example. In any case, the money lender is geared towards customers who earn a modest amount of money and do not have the savings to take care of unexpected expenses. However, larger expenses such as mortgages are more in line with what bankers can offer.
Speed of Service:
Assuming that you have the proper documents and the money is available, a licensed money lender will often have your loan ready in a half hour or less. This means that the entire process can be completed in under an hour from start to finish. This includes when creditors have to conduct background checks in which case if the borrower has good credit, the process can even be faster in getting the loan.
Banks on the other hand take far longer in most cases to approve a loan. This is because the decisions are made by a select person or group of people which means that the approval process is far slower to get going. Of course, a large part of this is the size of the loan, but the same process is used for basically all types of loans.
This means that for a personal loan and in particular a payday loan, it is generally far better to go to a legal money lender simply because you’ll have your money far faster than from a bank.
Higher Interest Rates for Money Lenders:
Since money lenders can only reveal their rates directly to the customer, they often charge far more interest than banks. In fact, many of the rates are so high that it might be cheaper to use your credit card rather than a licensed money lender. If you only need a relatively small amount to cover for an unexpected expense, then you might want to get approved for a credit card from a bank rather than going to a money lender.
Faster Approval Process for Lenders:
Perhaps the main difference between banks and money lenders is that the lenders are not as focused on the credit rating of the customer. Most banks have an instant rejection policy for customers who do not have the right credit number for loans. A money lender however can use other methods to help secure a loan such as collateral.
However, it is true that many lenders will do background checks and if they find multiple loans to your name, they will often deny you a loan. However, collateral can go a long way towards securing a loan with lenders and your credit rating is not as important simply because the typical amount of money needed is typically far less than what banks would loan.
Which One is Better for Your Loan?
It will depend in large part on the type of loan that you want. For mortgages and business start-up loans, banks are arguably better simply because they specialize in this type of loan. However, if you are looking for a personal loan or payday loan, then a licensed money lender is better for your needs.
It must also be stated that banks are generally more risk-averse than money lenders, even when it comes to very small loans. The old saying that banks will only loan you money when you don’t need it is actually more true than you might think. Banks are so risk-averse when lending money that they want their customers to have a great credit rating, high income level and plenty of investments which translates to not needing smaller loans and having the ability to pay off larger loans relatively quickly.
Unfortunately, most people do not fall into that kind of income bracket so if you need a smaller payday-type loan or a foreigner loan in Singapore, a money lender is far better for your specific needs. Still, you should weigh your options carefully before choosing a bank or money lender.