The disadvantages of a licensed moneylender loan, and the protections you have

Short answer. The main downside is cost: interest can reach 18% a year on an unsecured loan, late-payment interest applies to arrears, and failing to pay can lead to a court claim. In return, a licensed moneylender is bound by laws that protect you, and that's the key difference from an ah long.

The disadvantages

1. Higher interest

The legal cap is 18% a year on an unsecured loan and 12% a year on a secured loan (KPKT FAQ, in Malay). Bank personal loans are usually cheaper, so if you qualify for one, compare first.

2. Late-payment interest

If you pay an instalment late, the lender may charge simple interest at 8% a year on the overdue principal and interest, calculated daily until it's cleared.

3. Costs beyond interest

The law lets a moneylender charge stamp duty and legal costs connected with the loan. Any other cost is recoverable by the borrower as a debt, or deducted from the amount owed (Section 23 of the Moneylenders Act 1951). Ask for every charge in writing before you sign.

4. What happens if you can't pay

If you fail to pay within 28 days of an instalment's due date, the lender can end the agreement after 14 days' notice and claim the balance, including interest, legal and court costs, in court.

5. A debt cycle

Borrowing to pay other debts, including other moneylenders, can add to your monthly load. If you're already struggling with existing commitments, get financial advice first (see below).

Not a "disadvantage", but an offence

Some articles list harassment and threats as downsides of licensed lending. In fact, a moneylender or its agent may not come to your home, office or anywhere other than its approved business address to collect payment. Harassing or threatening a borrower or their family is an offence under Section 29B of the Moneylenders Act 1951, with a fine of RM50,000 to RM250,000, up to 3 years' jail, or both. If it happens, complain to KPKT through SISPAA at kpkt.spab.gov.my.

The upside: the protections you get

• A legal interest cap: 18% a year unsecured, 12% secured.
• Interest can't exceed the principal without a court order (Section 17A(2)).
• A prescribed agreement form (Schedule J for unsecured loans), one free copy, and a receipt for every payment.
• The right to check your loan ledger: the lender must keep an account book for every loan (Section 18).
• An official complaints route: KPKT, through SISPAA, for licensed lenders.

An ah long gives you none of these. Every figure and section above is from KPKT's moneylender FAQ.

When a licensed moneylender may not be your best option

• You qualify for a bank or cooperative loan at a lower rate
• The loan is to pay other debts and you're already struggling each month
• You're not sure how you'll make the repayments

In these cases, consider advice from AKPK, the Credit Counselling and Debt Management Agency, which offers financial advisory and credit counselling.

Before you sign

1. Make sure the company is licensed: see how to check a licensed moneylender.
2. Ask for the net amount you'll receive, the interest rate and the repayment schedule in writing.
3. Work out the total repayment with our calculator and make sure the instalment is affordable.

FAQ

Is a licensed moneylender worse than an ah long?

No. A licensed lender is bound by the interest cap, prescribed agreement forms and the ban on harassment. An ah long isn't.

How much is late-payment interest on a moneylender loan?

8% a year on the overdue principal and interest, calculated daily until it's cleared.

Can the interest end up larger than the original loan?

No, not without a court order.

Compared your options? See our personal loan requirements.