Do You Need a Licence to Lend?
Under the Moneylenders Act, lending money informally to friends or family doesn’t require a licence—unless it becomes a regular, business-like activity.
Is Charging Interest Legal?
Yes, you can charge interest on personal loans to friends and family, provided it’s not part of a moneylending business. There’s a legal presumption that anyone charging interest is a moneylender, but this can be rebutted by proving you’re not in the business of lending.
How Much Interest Can Be Charged?
The 4% per month cap on interest applies only to licensed moneylenders. For private, non-commercial loans, this cap does not apply. To stay safe, phrase the interest clause as “___% interest or maximum allowed by law.”
Are IOUs Enforceable?
Yes, IOUs are valid contracts. They’re less formal than promissory notes but still legally recognized if they clearly outline the loan terms.
Collateral and Guarantees
For large loans, consider securing the loan with collateral (like valuable property) or getting a guarantor. Collateral arrangements can be complex and might need legal advice. Guarantees must be in writing and signed by the guarantor.
Debt Recovery Options
If the borrower fails to repay:
- You can engage a debt collection agency (ensure you have proof of the loan).
- Debt collectors must act lawfully and not resort to threats or violence.
- Alternatively, hire a lawyer to issue a letter of demand and pursue legal action. This may be preferable for larger sums.
Note: The Small Claims Tribunal does not handle loan disputes.
Gathering Evidence
Strong evidence is key if you take legal action. Useful documents include:
- IOUs
- Texts, emails, bank transfers
- Witness testimony
Avoid vague or informal notes like scribbles on napkins.
Drafting a Proper IOU
While a lawyer isn’t essential, it’s wise to involve one for significant amounts. A proper IOU should include:
- Names, NRICs, contact details
- Loan amount
- Payment schedule and method
- Interest (if any)
- Date and signatures
- Witness information
Limitation Period
You generally have 6 years to file a claim:
- From the repayment date stated in the IOU
- Or from when repayment was first demanded (if no date is given)