Need Advice ?
Speak to a Lawyer Now
At Lions Chambers LLC, we pride ourselves on being responsive. We understand that some problems need immediate attention, let us assist you.
Lending Money To Friends & Relatives
Turning to a friend or family member for help is common in times of financial woe and hardship. But what is next after generally extending a loan with an IOU recorded? What are the procedures of recovering the debt and interest in accordance with the law?
A quick summary below will explain.
What is Moneylending? What is a Moneylending Business?
A moneylending business or a moneylender is defined by Sections 2 and 3 of the Moneylenders Act (Cap. 188) as any person or company that lends money to others in expectation of a larger sum to be repaid by the debtor.
People who lend money to their friends and family will not fall under the definition of a moneylender if they do not carry out a money lending business.
A person running a moneylending business can be distinguished by:
- Keeping records of loans made and repayments received for a period of time;
- Habitually loaning sums of money to people freely and in expectation of a larger sum in repayment; and/or
- Other records and/or patterns of conduct that show a person or company is making a business out of moneylending.
Is There A Need to Have A Licence for Loaning Money?
According to the Moneylenders Act (Cap. 188) (the “Moneylenders Act”), unlicensed moneylending businesses are prohibited. You will not require a licence if:
- You are an “excluded moneylender” per Section 2 of the Moneylenders Act; or
- You are an “exempt moneylender” per Section 35 of the Moneylenders Act.
Personal loans to and from friends and family are allowed so long as such personal loans do not fall into the definition of “money lending” or “moneylending business” as defined in the Moneylenders Act.
Can I Charge Interest?
Yes – if there is no evidence of you carrying on a moneylending business within the definition of the Moneylenders Act, you can charge interest on a loan to friends and family without being a licensed moneylender.
Please note that persons who charge interest on a loan are automatically presumed to be moneylenders for the purposes of the Moneylenders Act under Section 3 of the Moneylenders Act, which reads as follows:
“Any person, …, who lends a sum of money in consideration of a larger sum being repaid shall be presumed, until the contrary is proved, to be a moneylender.”
This presumption can be rebutted with evidence that you are not carrying on a money lending business.
Calculating The Interest Charged
4% is the current maximum permissible interest rate for licensed moneylenders, as stipulated under Rule 11 of the Moneylenders Rules 2009.
However, this restriction is not applied to personal loans to friends and families outside of any moneylending business.
For the avoidance of doubt as a lender and to avoid legal complications (if any), a clause on the interest rate is drafted in this form:
“______% interest rate or the maximum rate as allowed by law at this date of drafting”.
Are IOUs Considered Legal?
The answer is yes. An IOU is a written agreement between you and the debtor that records the terms of the loan and repayment. If the debtor fails to pay, you may claim that the debtor has breached the agreement. Do speak to a lawyer about the legal options open to you if you are in this situation.
Is an IOU a Promissory Note?
No, they are different.
An IOU is a simple agreement that states the terms of a loan.
On the other hand, under the Bills of Exchange Act (Cap. 23), promissory notes are governed by more formal requirements. Should you wish to know if a promissory note is more appropriate for your situation, please contact a lawyer to ask.
What is Collateral or Holding Security?
Security could be valuables and/or property belonging to the debtor that you would be entitled to hold on to if the debtor defaults on repayment. Typically, if a loan to a friend or family member is for a large sum of money, it is advisable to include security or collateral for the loan in the IOU.
Any security would serve as protection for yourself because this secured property can be used as repayment of the loan should your friend fail to repay you and become bankrupt.
It is advisable to seek legal advice should you wish to take security for a loan due to the complexity of the laws pertaining to securities. Registration is also required for securities. Please speak to a lawyer on how you may protect yourself before extending any loans.
What Is A Guarantor?
A guarantor is a third party who is involved in your loan agreement and/or IOU. A guarantor helps to guarantee a loan – this means that in the event that the debtor defaults, the guarantor will be the one who has to repay the creditor.
In order for a guarantee to be enforceable, the guarantee will have to be in writing and signed off by the guarantor in the presence of all parties involved in the loan. There must also be a witness present, and he or she must also sign the loan agreement and/or IOU.
Who are Debt Collectors?
Debt collectors are typically companies that can be engaged to go to your debtor and recover a debt for you.
Before a debt collector can proceed to pursue a claim on your behalf, they are likely to require proof of the debt.
Fees for engaging a debt collector can vary depending on the company or individual. Please always check before engaging a debt collector – some will take a cut of the recovered sum plus an upfront fee.
Despite there being no law that specifically regulates the activities or methods used by debt collectors, debt collectors must abide by all existing laws. No violence, property damage, or nuisance is allowed.
Alternatively, you may engage a lawyer to write a Letter of Demand to the debtor to ask for repayment.
A Letter of Demand can be very effective in reminding the debtor that the loan has not been repaid or forgiven and that the debtor should repay you as soon as possible for his or her own sake. Please speak to a lawyer about your options for writing such a Letter of Demand to get your matter resolved quickly.
Need Advice ?
Speak to a Lawyer Now
At Lions Chambers LLC, we pride ourselves on being responsive. We understand that some problems need immediate attention, let us assist you.
What Is Legal Recourse There?
If the debtor refuses to pay and does not want to settle the matter with you, you should speak to a lawyer to better understand all legal options available to you. It is wiser and more appropriate to engage the services of a lawyer instead of hiring a debt collector to recover a loan. This is especially where a substantial amount of money is involved.
A lawyer can assist you in issuing a Letter of Demand to the debtor. If the debtor persists in ignoring the Letter of Demand and/or not repaying you, you can choose to commence legal proceedings against the debtor for the money owed. For a straightforward debt matter with strong supporting evidence, a summary or default judgement can be obtained without the need for trial.
Please note that the Small Claims Tribunals (SCT) will not handle such matters unless the situation involves a contract for the sales of goods or provision of services.
Another option is mediation. You may seek to mediate the matter with the debtor to resolve the dispute. Please speak to a lawyer for guidance through mediation processes and what you may need to prepare for mediation sessions.
IOUs and Evidence: What Do I Need?
When using an IOU to record your loan, you should keep all relevant evidence of your loan, including but not limited to:
- The written IOU;
- Text messages between you and the debtor about the loan; and
- Any transfers of money or payments of cash made according to the IOU.
Please keep in mind that simply scrawling sentences such as, “A owes B S$10.00” on paper or over text would generally be insufficient proof of a loan agreement.
Having strong evidence of the existence of the loan and that money was lent to the debtor will give you a higher chance of success if you decide to take legal action against the debtor.
Need Advice ?
Speak to a Lawyer Now
At Lions Chambers LLC, we pride ourselves on being responsive. We understand that some problems need immediate attention, let us assist you.
How Do I Write an IOU? Is There Precedent for an IOU?
In general, you should state:
- Your name, ID number, address, and contact information;
- The debtor’s name, ID number, address, and contact information;
- The loan amount;
- The method of transferring the loan to the debtor;
- The date of the loan; and
- The repayment date, or dates if in instalments.
You should also state if you wish to charge any interest on the loan sum.
An IOU can help you save on potential legal fees in the future should your debtor not repay you. As such, you should speak to a lawyer about drafting an IOU.
Does There Need to Be A Witness During The Signing?
To avoid any allegations of duress, undue influence or mistakes made by the debtor, it is recommended to arrange a witness to be present at its signing on the drafted and agreed to IOU.
The witness’ details should be reflected on the IOU note where possible.
Limitation Period for making a claim
The limited shelf life on the IOU will be implemented should the debtor’s debt is not repaid.
- Legal proceedings will commence within six years from the stipulated repayment date – if there is a clause on a stipulated repayment date reflected in the IOU and the debt status remains as unpaid.
- The six years time limit will start to take place from the date when the cause of action arises – if there is no clause in the IOU that stated a repayment date.
There will be a need to seek specific legal advice to determine the exact limitation period then.
How can we help you
Debt recovery & IOUs are delicate issues, and the documents required to process the actions to be taken may be too technical and complex for you to understand fully. Worry not, at Lions Chambers LLC, we have experienced lawyers well-versed in Singapore debt recovery proceedings. We will guide you through and explain to you each and every stage of your case. We understand that going through such an event is difficult.
Lions Chambers LLC is an established law firm in Singapore. Our team of lawyers specialise in various areas of law and will be able to assist you. Our consultations are free. Please call +65 8777 3677 or click here to WhatsApp us today.