A licensed money lender is a person who has obtained a license under the Money Lenders Act. These lenders are regulated by the Moneylenders Registration Authority. They must also adhere to statutory requirements to ensure that their claims are upheld by the courts.
A moneylender must explain loan terms in clear language that a borrower can understand. They should also provide a copy of the loan contract and ensure that the borrower has understood all the terms and conditions.
Licensed money lenders should only advertise through 3 channels: (a) business or consumer directories, (b) websites belonging to the money lender and (c) advertisements placed within or on the exterior of the moneylender’s premises. All other channels are prohibited and any advertising that is in violation of the rules will be deemed to be illegal.
The maximum interest rate that a licensed money lender can charge a borrower should not exceed 4% per month. It should also provide a statement of account to every borrower containing the name and address of the lender, date of the loan, total principal and repayment schedule.
Another important consideration is whether the lender charges additional fees or penalties. If they do, they must inform you of this at the time of the loan application and allow you to make an informed decision.
Unlicensed money lenders can take advantage of borrowers who are in a tight financial situation and offer them loans at high interest rates. Some of these loan sharks may use abusive language or intimidate the borrower’s guarantors and family members to collect payments. licensed money lender