Law Ministry imposes 3-day cooling-off period for loans taken from licensed moneylenders

Starting September 15, 2026, borrowers in Singapore seeking unsecured loans from licensed moneylenders will be granted a mandatory three-business-day cooling-off period. During this time, individuals who wish to cancel their loans will be able to do so at a reduced cost. The Ministry of Law (MinLaw) announced the change on August 31, emphasizing that the cooling-off period applies to all unsecured loans except those related to business purposes. The period excludes weekends and public holidays, ensuring that borrowers have sufficient time to reflect on their borrowing decisions. Under the new framework, licensed moneylenders will only be permitted to retain a fraction of the loan approval fee if a borrower decides to cancel the loan within the cooling-off period. This adjustment aims to compensate lenders for the administrative and due diligence costs associated with processing the loan, while reducing the burden on borrowers who might have made impulsive financial decisions. Currently, moneylenders could retain the entire loan approval fee and any accrued interest upon cancellation, but this practice will now be restricted. The specifics of the fee retention vary depending on the loan amount. For unsecured loans of up to S$5,000, moneylenders can retain up to S$50, but not more than the loan approval fee charged. In contrast, for loans exceeding S$5,000, the maximum allowable retention is 3.5 percent of the principal amount, again capped at the loan approval fee. This structure ensures that moneylenders are fairly compensated while limiting the financial impact on borrowers who decide to withdraw from a loan agreement. To illustrate, consider a borrower who secures a S$1,000 loan. After a 10 percent loan approval fee of S$100 is deducted upfront, the borrower receives S$900. If the borrower cancels the loan during the cooling-off period, they would need to repay up to S$950, comprising the S$900 received and the S$50 retained by the lender. Similarly, for a larger loan of S$10,000, with a 2 percent loan approval fee of S$200, the borrower would receive S$9,800. Upon cancellation, they would be required to repay up to S$10,000, including the S$200 retained by the lender. MinLaw collaborated with the Credit Association of Singapore, which represents licensed moneylenders, to develop this framework. The initiative reflects efforts to protect consumers while acknowledging the operational realities faced by moneylenders. The ministry acknowledged that licensed moneylenders will require time to adapt their internal processes and systems to accommodate the new regulations. To facilitate this transition, MinLaw emphasized its commitment to working closely with stakeholders to ensure a smooth implementation. In addition to introducing the cooling-off period, MinLaw has already taken steps to enhance borrower protection. In April 2026, the Registry of Moneylenders updated its Professional Service Handbook to encourage licensed moneylenders to adopt borrower-friendly practices. These measures include offering incentives for timely repayments, developing digital tools to assist borrowers in managing their loans, and creating mechanisms to support distressed borrowers through loan restructuring or referrals to social service agencies. As the new rules take effect, the focus remains on balancing consumer protection with the continued availability of credit from licensed sources. Licensed moneylenders are listed on the Ministry of Law’s Registry of Moneylenders, accessible via its official website. This transparency aims to empower borrowers to make informed choices while ensuring that the lending sector operates responsibly and sustainably.