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The Government is in the process of tightening controls on licensed moneylending in Singapore, but the changes couldn’t come sooner for Terence (not his real name) who has been drowning in debt for the past two years. He has been forking out S$4,000 a month, or 88 per cent of his take-home pay, to pay interest on a loan he took from a licensed moneylender. He agreed to speak to inSing about his problems on condition that he not be identified, because if his employers found out about his debt, he would lose his job. The 33-year-old is an honours degree holder and a white-collar professional. He estimates that he has paid out about S$70,000 in interest over two years on his original loan amount that was S$20,000. He has had to take up a second job, working weekday nights and over weekends so that he is able to pay his utility bills and to support himself. OVERSPENDING BEYOND MEANS His debt problem was seeded about 10 years ago, after he graduated from university and got a job. “My family has never been well-off, he said, "so when I started my first job and earned a proper salary, I suddenly felt like I was awash with cash. I started splurging.” He admits he was not very prudent with his money. He bought a car within six months and went on frequent holidays. When he went out with friends at night, he would order bottles of wine and pick up the tab for everyone. “The banks kept on sending me invitations to sign up for credit cards, and at one point, I was using 10 different credit cards. I lost track of my spending,” he said. He started incurring higher interest rates when he began using "cash advance", also a banking feature that comes with credit cards, allowing cardholders to spend first in advance and pay later. It comes with an effective interest rate of 24 per cent per year. “I thought I had it under control," Terence said, "because I had my year-end bonus to count on. Every time I splurged, I would tell myself never mind, I will throw in my bonus to repay my debts. But when the year-end interest came, there would be other things to splurge on, so the credit card bills continued to pile up." BURDEN INCREASED In his second year of full-time employment, Terence’s parents retired and he had to help pay their household utility bills. Together with his car loan payments and petrol usage, he had to set aside S$1,500 every month for these, nearly half of his take-home wages back then. “Fortunately, my parents now have monthly cash payouts from their CPF (Central Provident Fund, a national savings scheme) accounts so I do not need to support them,” he said. His girlfriend learnt about his situation and it resulted in a major fight. His credit card bills amounted to nearly a year of his salary. Soon, he cancelled all his credit cards, stopped going on holidays, and cut down on clubbing. He spent the next two years trying to pay off the banks. Towards the end of 2011, he received a writ of summons from two banks that threatened to take him to court over the remaining S$20,000 he owed them. MONEYLENDERS If Terence had gone to court, he would have lost his job. So out of desperation, he turned to licensed moneylenders. “A primary school classmate was working for a licensed moneylender and suggested that I borrow from them, so I took a loan of S$20,000. The interest rate was 12 per cent per month,” he said. The interest rate meant that Terence would have to repay S$2,400 every month in interests alone. “I am not stupid, I knew it was a lot to repay every month, but I really felt like I had no choice at that point in time. I didn’t want to lose my job. My plan was to endure it for six months and after that, borrow money from the banks again to pay off the moneylender,” he said. Six months later, his plan hit a snag. The banks refused to lend him any more money because of his poor credit rating. He then paid to get his credit bureau report and realised that he had been blacklisted by the banks, and would be allowed to get any loan after three years. Terence decided to "refinance" his loan with the moneylender by taking out a S$25,000 loan at a higher interest rate of 16 per cent a month. The principal amount of money owed to the moneylender also ballooned to S$30,000 due to a late-fee penalty of S$120 a day. CREDIT COUNSELLING If Terence had gone for credit counselling to work out a repayment plan with the banks, he would not be in this situation, but he did not know he could do this. He has been living “under immense stress” for the past two years, he said. His girlfriend broke up with him and he has no one to confide to about his problems. These days, Terence has a no-frills lifestyle. “I haven’t gone on holiday in two years. I eat most of my meals at home except for lunch at a hawker centre. I don’t spend on anything. My life is all work and then I go home. I have stopped going out with friends. My parents have also become frail, and that is an added reason for me to spend more time at home with them.” The silver lining is that because of all the time he spends at home, he has become closer to his parents. “They know about my debt, but they don’t have the financial ability to help me. I have spared them the details and told them that I can manage on my own,” he added. ONE FINAL LOAN He hopes he will be able to completely pay off the licensed moneylenders in six months’ time. His credit rating will be refreshed and he may take up bank loans at more manageable interest rates this time. Terence hopes his experience will serve as a warning for people who are overspending more than they can afford and rolling money on credit cards. He also advises against taking loans even from licensed moneylenders because “everything can quickly spiral out of control”. He said: “The current cap of 20 per cent on monthly interest rates is really too high. The cap should be lower. Lately, I have started to see these moneylenders set up branches in HDB (public housing) estates. I am worried that more people may make the same mistake that I did.” A check on the Insolvency and Public Trustee’s Office’s website showed that there are now 180 licensed moneylenders operating in Singapore and at least 25 operate within public housing estates. Terence hopes that the Government may provide more help for borrowers like him. He said: “I really pray that I will be given a second chance to get my finances and life in order. All I really need is a bank willing to take one more chance on me and provide me with a loan. My current situation is sucking the life out of me.” http://features.insing.com/feature/a-matter-of-life-and-debt/id-154a3101/ The interest rate charged by licnsed moneylender is not much dif from the illegal loan sharks. These so called licensed $ lenders are legal loan sharks. This guy pays a monthly interest of $2,400 for a loan of $20,000.00. And he has paid out about S$70,000 in interest over two years on his original loan amount that was S$20,000.