When do you apply for a loan? Most people do it when they want to start a business, buy a house or car, or fund personal pursuits like travelling or studying abroad. You go to a bank for these kinds of purchases. But when you have a financial emergency, like if a family member suddenly needs expensive medical treatment, you’re better off applying for a low-interest loan from licensed moneylenders.
Let’s take a look at how and why many borrowers turn to moneylenders instead of banks. But first, let’s briefly dispel a few erroneous assumptions about these alternative loan providers.
Money Lending Is a Legitimate Business
A lot of write-ups have been published about the dangers of borrowing from loan sharks. They are correct, but what’s unfortunate is they lump moneylenders under the same category. Worse, some paint moneylenders are scams.
This is far from the truth. Licensed moneylenders are as legitimate as banks. They are regulated and subject to national laws, hence, their customers enjoy protections just like banking customers.
In Singapore, where “ah longs” or loan sharks have a violent history, the government legitimized moneylending in the country by creating regulatory rules for private lenders. The Ministry of Law enacted the Moneylenders Act in 2008 and later revised the law on March 31, 2010. Licensed moneylenders in Singapore can proudly open their doors and offer financial products to customers who often do not qualify for loans in banks.
Anywhere else in the world, people can borrow from licensed moneylenders without the fear of harassment, aggressive collection tactics, increasing fees and interest rates and other illegal practices.
The Advantages of Borrowing from Licensed Moneylenders
- Fewer requirements and more relaxed criteria for loan applications
The market for moneylending is often low-income individuals and people with low credit scores. These are people who have a low chance of getting approved if they apply for a personal loan at a bank. Moneylenders want to make their products more accessible to these people, so they have fewer requirements and are less strict with their screenings.
People with poor credit have a higher chance of getting approved for a low-interest loan from private moneylenders than banks. Private lenders barely look at credit histories; they’re more concerned with an applicant’s ability to pay it back. It’s always good to check the factors that determine the prime rate.
Some private lenders even cater to a specific group or demographic, like small business owners, agricultural entrepreneurs and retirees. These lenders aren’t necessarily more lenient, but since they have extensive knowledge about their target market, they are more sympathetic to their clients’ needs.
- Hassle-free application
The straightforward screening and fewer requirements make applying for loans from moneylenders a breeze. But other than asking for simple requirements, moneylenders also invest in one-stop online platforms that make applying for loans a lot easier.
Applicants can answer an online questionnaire, scan documentary requirements, and upload them on the moneylender’s website for review. This direct-to-underwriters process cuts out the unnecessary and redundant steps that make applying for bank loans such a hassle.
- Fast approval and disbursement of the loan
This is arguably the biggest appeal of moneylenders: they can approve loan applications and send the money to borrowers on the same day. Some can even give you an update about your status within the hour.
These lenders are a godsend to people who need money for emergencies, like when someone in the family is rushed to the ER or if credit card bills are due at once. It could be more practical to pay them off with the money from one low-interest loan (like an informal debt consolidation) instead of just paying the minimums and incurring more debt from overdue charges.
- Unsecured loans are more manageable
Some people might see this as a disadvantage: moneylenders must observe the caps on how much they can lend to customers based on their annual incomes. The policies differ per country, but it’s common for moneylenders to offer five-figure loans tops for unsecured loans that require zero collateral.
The low caps can work in a borrower’s favor. Should they experience financial hardship halfway through repaying their loans, they won’t suffer more from astronomical interest rates and late payment fees because the loan is small, to begin with. It’s easier to manage unsecured debts from private lenders because of this.
- Flexible repayment plan
Many private moneylenders also offer flexible repayment plans to customers who are struggling with their current loans. These are commonly the moneylenders who cater to a specific demographic or group. They tailor their products according to their customers’ needs. If a customer’s monthly income gets reduced, i.e., they get laid off or become unable to continue their current line of work because of an illness or injury, moneylenders can refinance the remainder of their debt.
Licensed moneylenders can throw a lifeline to people who’ve been denied traditional loans. Keep the contact information of a legitimate, licensed moneylender so that you can quickly act if you need a small loan asap.
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