It is a mathematics problem that would scramble the minds of most financial experts.
If one borrows $8,000 at an interest rate of 20 per cent a month, and has paid monthly instalments totalling $76,800, how much longer will it take to clear the debt?
The answer is – possibly never.
This is the quandary one family here is facing after a moneylender here refused to renegotiate the terms of the loan.
The result is that even if they continue paying $1,600 every month until the end of time, they would still owe the moneylender $9,600.
The loan comes with a monthly interest rate of 20 per cent, which works out to a 240 per cent yearly interest rate.
It is similar to the interest rates charged to Mr Goh Meng Leong, who appeared in the news last week when a judge quashed one moneylender’s bid to bankrupt him even after he had paid back twice the principal sum.
Such high interest rates charged by licensed moneylenders were the norm before new moneylending rules kicked in last year, capping interest rates at 4 per cent per month.
The family’s troubles began when their father turned to licensed moneylenders to repay gambling debts. It started with two initial loans of about $10,000, made in 2010 and 2012.
When he couldn’t manage the payments, he borrowed more, owing a total of seven moneylenders through 18 loan contracts.
His story was narrated to The New Paper on Sunday by one of his daughters, who wanted to be known only as Yan, 44.
Yan, who is single and living with her father, says: “He thought he could handle the first two loans… He was registered as business partner in a small restaurant so he was able to (get the) loan in the first place.
“As he did not stop gambling and had regular payments to make, it just went out of control. He has no income, so he could not even pay off (the loan even if he wanted to).”
Yan’s family had no idea that he had made those loans until they got repayment letters and phone calls from moneylenders.
When they found out, they confiscated their father’s passport and cut him off his gambling habit.
They managed to clear off several debts for him using their own savings, borrowing from friends and transferring the debts to their own names.
But it was one of the 18 loans – an $8,000 loan contract made in 2012 – that has the family scratching their heads.
They have paid around $76,800 to repay the interest from this loan so far, nearly ten times the original amount loaned.
Yet, the debt is still not repaid.
The moneylender still wanted them to pay back another $9,600 in full – the principal sum of $8,000 and remaining interest of $1,600 – before they can close the books on the contract.
No instalments
The moneylender was also unwilling to accept instalments for this last $9,600, or restructure the loan contract to fit the new lending rules.
Moneylenders are not obliged to do so, but some do it out of goodwill.
Yan, a regional sales director at an international company, does not want to reveal the family’s name to avoid trouble with this moneylender.
“Despite having made so much money from us, they still refused to allow us to switch the contract (to a more favourable one). We feel that this is unethical,” says Yan, who earns a five-figure monthly salary.
The seemingly never-ending debts have caused problems for the siblings.
Yan says: “It is tougher for my sister, who has two young children. Her husband does not really know about the financial burden that our father has placed on us… She has kept it away from him. She has emptied her own savings and taken out a loan with a bank.
“She has also cut down on one education plan for each of her children, and there have been no holidays for the past three years, unless it is to nearby destinations.”
As for her father, he declined to speak to TNPS but communicated through Yan that he regrets what he did.
This problem has also left him estranged from his son and his son’s two children, aged four and five.
Yan says: “He has regrets. He has lost the chance to ever be acknowledged by his only son and his son’s children.”
CAN YOU RENEGOTIATE? IT DEPENDS ON THE MONEYLENDER
Licensed moneylenders should always be willing to meet at the negotiating table, two moneylenders tell TNPS.
That is provided debtors have shown a willingness to pay up, they add.
A spokesman from Credit Assist, a licensed moneylender in Chinatown, says: “It will be unreasonable for a moneylender to refuse negotiations when the person has been paying for so many years.”
His company has a practice to help borrowers repay their debts, even lowering the interest rate for the borrower if necessary.
“We do have a guide here that if the borrowers have paid over a certain amount, we will be more lenient with them. Some of our customers even had their rates lowered to 12 per cent annual interest, which is almost nothing,” he says.
But there is no regulation to compel moneylenders to do this.
“It is purely based on each company’s ethics,” the spokesman added.
Last year, the Moneylenders Act was changed to cap nominal monthly interest rates at 4 per cent and an upfront administrative fee of not more than 10 per cent of the loan principal.
Previously, there was no such cap and moneylenders were free to set the interest rates based on a “willing lender, willing borrower” system.
Like loan sharks
Annual interest rates of 240 per cent are commonplace, leading people to compare these rates to unlicensed moneylenders or loan sharks, says the Credit Assist spokesman.
In comparison, banks currently charge an annual interest rate of between 5 and 20 per cent for personal, unsecured loans.
The actual rate depends on many factors, such as the size of the loan and one’s credit rating.
Many contracts that are currently active were inked before these changes kicked in.
One licensed moneylender, who gave his name as Mr Lim, believes that some licensed moneylenders still refuse to budge because the old contracts are too profitable to give up.
“Perhaps for some of these moneylenders, they see it as a way to hang on to the old days, because the new rules are not sustainable to them,” says Mr Lim.
He declines to be identified, adding that the community of licensed moneylenders is struggling with the 4 per cent cap.
Mr Lim, who is the sole proprietor of his firm, explains: “Customers come to us because they are not able to get a loan from the banks. These are usually people who are more likely to default.
“The bad debt ratio that we are dealing with is probably 10 times that of the banks. That is why interest rates have to be 10 times higher.”
TNPS was unable to reach the Moneylenders’ Association of Singapore for comment.
DESPITE HIGH RATES, BORROWERS HAVE FEW ALTERNATIVES
An annual interest rate of 240 per cent for a loan may sound high, but debt counsellors say they have seen worse .
Credit Counselling Singapore (CCS) general manager Tan Huey Min has even seen cases where borrowers were charged annual interest rates of 1,000 per cent.
Despite such high rates, people still signed off on such contracts because they had few alternatives.
Ms Tan says: “They can’t take personal loans from banks because they need to have a certain level of income to do so.
“And they may not have the option of borrowing from co-operatives as they are open only to a certain segment of the public.”
The changes in the Moneylenders Act last year has helped reduce the number of borrowers facing issues, albeit slightly.
From January to October this year, CCS has counselled 3,219 cases, compared to 3,760, over the same period last year.
Ms Tan says: “Gambling debts are often the main reason, but there are also those who borrow due to medical emergencies.
“We are also noticing a number of borrowers who used to be high-income earners, but did not want to change their spending habits and lifestyles when they lost their jobs.”
There are 160 licensed moneylenders operating today, according to the Law Ministry website.
Bad Apple
While banks have to abide to strict rules and licensed moneylenders have the Moneylenders Act to stick to, Ms Tan says moneylenders can be difficult to negotiate with as each has “its own way of doing things”.
Mr Billy Lee, founder and executive director of Blessed Grace Social Services, estimates that one in 10 moneylenders is a bad apple.
He deems them unethical when they give out a loan even though they know the person may not be able to repay it.
In March, the new Moneylenders Credit Bureau (MLCB) gave moneylenders the ability to see other loans that customers have taken before and their repayment records.
But Mr Lee says some moneylenders still provide loans to these chain borrowers “based on their own rules”.
Some of these firms also have a history of harassing borrowers and reject repayment plans that his social workers come up with, he adds.
Mr Lee says he will usually try to negotiate with the moneylender, but when he realises that the moneylender is out to keep the borrower on a contract that he knows will never be repaid, he will report the moneylender to the authorities.
He even keeps a blacklist of errant moneylenders who repeatedly deny requests for negotiations and frequently reject repayment plans from the social workers.
This article was first published on November 20, 2016.
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