In $8,000 debt over $300 loan
By Chai Hung Yin
The New Paper
Thursday, Jun 07, 2012
Even going to licensed moneylenders can cost you if you don't do your sums.
Short-term gain can come with long-term pain as this man, who wanted to be known only as Mr Dzul, 54, found out.
After his retrenchment from a bank in 2005, he could find a job only as a security guard, earning $1,000 a month.
His wife, who works as a health attendant, brings home about $700 a month.
Mr Dzul ended up owing more than $2,000 in conservancy charges over a few years for his five-room flat in Jurong.
It was the beginning of a debt spiral which saw him borrowing from a total of 13 legal and illegal moneylenders.
The father of four had panicked when he was asked to go to court to settle his conservancy charges.
He told The New Paper: "I turned to a legal moneylender for partial payment of the charges."
He said he did not seek assistance before doing so.
He borrowed $300 from the moneylender last July and had to repay $60 weekly.
He said: "At that time, I was so desperate, I agreed to all the terms in the contracts."
But then, he missed a couple of payments and said that he had to pay late charges of $20 a day.
He then went to a second moneylender and borrowed $500 to help him settle his debts with the first one.
Problem resurfaced
Said Mr Dzul: "I could then settle the loan from the first moneylender. But then, I had problem servicing the second loan, which had a weekly repayment of $100."
Again, he went to a third moneylender to cover his spiralling debts and the scenario repeated itself.
And when he could not cope any more, he turned to illegal moneylenders.
From his initial $300 loan, Mr Dzul's debts snowballed to about $8,000 in less than a year.
He now owes money to seven legal and six illegal moneylenders.
Then, the harassment started.
Mr Dzul said a debt collector from one of the legal moneylenders came to his flat three times.
He said: "They knocked on my door and shouted at me and my wife. They also called my wife repeatedly and threatened to come down to my house if I didn't pay up."
Mr Dzul called the police after the third time.
He also sought help from voluntary welfare organisation, One Hope Centre, he said.
While showing this reporter an SMS from a legal moneylender, he said: "I have to put a stop to this. Two other legal moneylenders have warned me via SMS.
"The harassment from the illegal moneylenders has not started yet, but it will start soon."
Mr Dzul added that on top of the exorbitant late fees, there is also a transport fee of $10 per trip charged when the debt collector makes a trip to his flat to demand payment.
The Ministry of Law amended the Moneylenders Rules which took effect last Friday.
Mr Dzul confessed that he regrets the "biggest mistake in my life".
He said: "I don't gamble, drink or smoke.I should have negotiated with the authorities with regard to my conservancy charges."
Changes made to Moneylenders Rules
1. Licensed moneylenders have to calculate and disclose the effective interest rate (EIR) of their loan packages to borrowers.
Previously, nominal interest rate was used to calculate the interest rate.
2. Borrowers earning an annual income of less than $30,000 get interest rate caps of 13 per cent of EIR for secured loans and 20 per cent of EIR for unsecured loans.
Previously, only those earning less than $20,000 had this interest rate cap.
3. Licensed moneylenders are no longer allowed to charge upfront fees, such as acceptance fees.
But in cases where the borrower defaults on payments, conditional fees such as late charges are allowed.
4. Borrowers can no longer borrow more than what they are allowed to based on the rules.
Previously, exceptions such as loans for business, renovations and education were allowed, which enabled borrowers to borrow above the loan limit.
This article was first published in The New Paper.
