Loans have become popular in the recent past due to easy accessibility in case of emergencies. However, it is essential to confirm if the money-lender is licensed before taking out a loan. Although this is a crucial factor, most people do not bother to verify if they are getting their lenders registered. Licensed money lenders are registered institutions that offer loans to clients. In contrast, unlicensed money lenders are unregistered, and they offer loans illegally. Here are the significant differences between licensed and unlicensed lenders.
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Interest Rates
The interest rates of licensed money lenders should be relatively fair for the customer taking the loan. Money lenders are legally required to charge a maximum of 4% monthly interest on the requested money. After thoroughly evaluating the customer’s creditworthiness and confirming they are eligible for a loan, this is after thoroughly evaluating them. In contrast, unlicensed money lenders can charge up to a 40 % interest rate. This rate is not fixed since they intend to suck up the client’s wallet and make abnormal profits.
Government Regulated
Licensed moneylenders are regulated by the government and comply with various rules and regulations. They are required to disclose all associated fees and interest rates. Unlike unlicensed moneylenders, licensed moneylenders offer competitive interest rates, more products and services, and are free of hidden fees. If you’re looking for a moneylender who offers competitive interest rates and great service, go with a licensed one.
The Openness of the Loan Agreement
One common factor in illegal businesses is that transactions are not done transparently. Licensed money lenders will give you contractual terms that are easy to read through and understand. Some can even agree to go through them with you for clarity purposes. They clearly state the late repayment fees, reasonable interest rates, and repayment options.
In contrast, unlicensed money lenders rarely offer contracts, making them complex if they do. Sometimes they can send you files through SMS or WhatsApp to lure you into paying some amount before acquiring the loan.
Loan Limit Amount
When asking for a loan, there should be a limit you cannot exceed. However, that’s not the case with unlicensed money lenders. They have predatory loan offers to customers. The total payment amount to be paid exceeds the principal amount provided. Licensed money lenders are bound by law on the amount they can offer their clients based on their yearly earnings. It is difficult to find legitimate institutions offering loans, which is why it is essential to licensed money lender guide.
Repayment Method
Unlicensed money lenders use extreme measures like blackmail and threats when collecting the amount loaned in case of delays. They add penalties that were not part of the initial contract. Some loan sharks access your phone contacts and contact your family and friends to intimidate you into paying the loan. Licensed money lenders can’t use the above measures to acquire the loan back. This is because the government sets restrictions on consumer protection. Instead, they follow a regular procedure that involves calling or mailing the borrower. The designs are to inquire about the loan payments formally.
Mode of Advertisement
Advertisements are the most used marketing strategy by money lenders. Adverts can address a larger population once within a short time. Licensed money lenders are regulated in making their services known to the general public. The government censors how they market their services online to consumers. Advertising is done through websites, business directories, and print.
While it is possible to find legitimate lenders who offer loans without credit checks, beware of loans advertised with no credit check. These advertisements are usually a sign of a scam. Some lenders may not report their activity to the credit bureaus if you have bad credit. This means you can’t use these loans to repair your bad score. Moreover, borrowers with bad credit may be targeted by illegitimate companies and scammers who try to exploit their desperation. Unlicensed money lenders use informal channels such as flyers, text messages, and emails to market their services. They appear to offer more appeal.
Registered Workplace
Any money-lender should have a physical workplace as stipulated by the law. The office should be where the institution carries out its daily operations and should be registered legally. Licensed money lenders comply with the above regulations and make it easier for customers to get in touch. In contrast, unlicensed money lenders operate like briefcase companies that are there today and missing tomorrow.
Fast approval
The benefits of using a licensed moneylender include convenience and speed. Unlike banks, licensed moneylenders can approve your loan within an hour, and some offer 30-minute approvals. There are many differences between a licensed and an unlicensed moneylender. Still, the most significant difference between them is the amount of time it takes.
Retaining Part of the Loan
When requesting a loan, it is expected that the borrower will be given the whole amount of the money they have qualified for. Licensed money lenders oblige to the policy and disburse the funds wholesomely. But unfortunately, unlicensed money lenders withdraw part of the money, claiming it’s part of processing the loan.
Fee charges
A licensed money lender only charges late payment, service, and legal fees. All these charges are formal and are highlighted in the initial agreement, in line with the market rates. Contrastingly, unlicensed money lenders charge all these fees and other expenses. These charges are usually above the market rates.
Legal Contract
A licensed money lender will ensure that a contract is established to bind the two parties legally. It indicates the amount loaned, the interest rates, the payment per month, and other essential conditions. However, unlicensed money lenders don’t involve contracts. If they do, they are reluctant to sign them since they put them just for formality.
Conclusion
Money lending is among the fastest-growing service businesses. Unfortunately, the availability of many money lenders leaves customers at risk of being scammed. If one cannot differentiate between licensed and unlicensed money lenders, they are susceptible to falling for a scam. With the above tips, it’s now easy to evaluate a money-lender before acquiring a loan. Take a reasonable loan from a licensed money lender and avoid the risks of unlicensed money lenders like loan sharks.
