When asked to compare banks and money lenders, many of us are often tempted to liken money lenders to the sensationalised loan shark. Indeed, we imagine money lender loans to carry extremely high interest rates, promoted by shady characters and coupled with brutal debt collection methods. However, this could not be further from the truth for the licensed money lenders that we refer to in this article.

Have you ever heard of the phrase, “it takes money to make money”? To a large extent, this is true as you reap higher returns from larger investments. And so, given that many of us lack the capital to enter into larger investments, we may be tempted to borrow money to make up the shortfall.

While not particularly intuitive to the layman borrower, prepayment penalties seek to prevent you from clearing your debt early. Many of us figure that our creditors would be happy to receive our money earlier, but this is not the case due to a decrease in interest payment owed.

Over the years, you would probably come across various stories of how sky high interest and snowballing debts from loans have crippled individuals. The media has likely warned you of the dangers of taking loans, encouraging you to look for alternative sources of finance. If so, this information has probably painted the industry in a bad light, one that is out to corner and swindle you of your future.