Lenders are businesses or financial institutions that lend money, with the expectation that it will be paid back. The lender is paid interest on the loan as a cost of the loan. The higher the risk of not being paid back, the higher the interest rate. Lenders do not participate in your business in the same way as shareholders in a corporation or owners/partners in other business forms. In other words, a lender has no ownership in your business.
As you look for a lender, consider the type of loan you need. But more than that, look for the right lender so that you don’t fall in may financial trap or overdo your budget. No matter what, you must always avoid working with the following types of loan lenders.
Unlicensed Ones
Make sure to avoid unlicensed money lenders when thinking of applying for even small loans. You may have an easier time applying and having your loan approved from these types of money lenders, but you can bet your life that the interest rate is going to be very high and its repayment options very difficult to comply with. However, you must understand that a person or entity, whether licensed or not have the right to lend another individual money, but the unlicensed one is not bound by Singaporean laws covering money lending activities. You are, therefore a lot safer by borrowing money from licensed lending institutions.
Telemarketers
Avoid moneylenders that advertise their services in the form of telemarketing or through SMS marketing. Legal moneylenders in Singapore are never allowed to do this as per instructions of the IPTO rules and privacy acts of the country. Illegal money lender uses these marketing strategies to reach out to clientele so it would be best to avoid these lenders.
Overconfident Ones
When applying for a personal loan, avoid moneylenders that claim to have the power to approve your loan and remit the loan amount via bank transfers. Most of these claims are bogus because the moment you have to pay the fees and other charges for your loan, in all probability, there will be no cash that will transferring to any of your bank accounts.
Stalkers
Avoid money lenders that would require you to disclose personal information over the phone. Some money lenders would trick prospective clients into disclosing personal data when the latter would call for some information relative to applying for a loan. Immediately avoid this type of lenders.
Portfolio Lenders
A portfolio lender funds borrowers’ loans with its own money. Accordingly, this type of lender isn’t beholden to the demands and interests of outside investors. Portfolio lenders set their own borrowing guidelines and terms, which may appeal to certain borrowers. For example, someone who needs a jumbo loan or is buying an investment property might find more flexibility in working with a portfolio lender. These lenders can change their guidelines suddenly without even informing you. This way, you may fall trap to these lenders’ terms and end up facing financial losses. Thus, avoid them.
Hard Money Lenders
Hard money lenders are usually the last resort if you can’t qualify with a portfolio lender or if you fix-and-flip homes. These lenders are usually private companies or individuals with significant cash reserves. Hard money loans usually have to be pay off in a few years so they appeal to fix-and-flip investors. Especially those who buy, repair and quickly sell homes for profit. While hard money lenders tend to be flexible and close loans quickly, they charge hefty loan origination fees and interest rates as high as 10% to 20% and require a substantial down payment. Hard money lenders also use the property as collateral to secure the loan. If the borrower defaults, the lender seizes the home.
Family Member or Friend Lender
Borrowing from friends or family members has some obvious advantages. You will not be judge just by your credit score since your friend or relative know your character as well. Someone whom you already know is probably also not likely to charge very high interest and will be more forgiving if you make a late payment. You won’t have to pay any bank fees, either. However, if you can’t pay them back or are late with your payments, then you could ruin your relationship. Without a legal contract, you’re also at risk of having them change their mind and demand the money back immediately. Without a legal contract, you have no recourse if the lender changes their mind. Plus, if you get into any family issues with these lenders, they may play around with your loan interest and repayment and force you to face a loss or hard time.
Dealing with a legitimate and reputable lender will prevent most problems. Always research about lenders you’re considering using and read both positive and negative reviews. Remember that everything on the internet isn’t true, and you might be reading reviews from employees or con artists. It’s safest to borrow from a lender that you’ve heard about from a source you trust.