Loan Or Investment: What You Need To Know Before You Lend (Or Invest)

Siow Yong Xin
Intern

My name is Siow Yong Xin and I just completed my legal internship at Raj, Ong & Yudistra

As an intern, I was exposed to many interesting and challenging cases. One of the more exciting ones was when I assisted my honoured mentor which is Mr Yu Jian Ong in a case where we needed to distinguish between a loan and an investment. We also needed to consider the legality of a collateral attached to a friendly loan.

Firstly, what is a loan? A loan is a transaction where one party agrees to lend money to another. In many cases, repayment of the loan comes with interest being charged. 

Loans are generally split between a friendly loan and a normal loan. What is exactly a friendly loan? A friendly loan is a loan given between associates, i.e. friends, family or acquaintances. Friendly loans usually have no interests charged or very minimal amounts only. Whereas in a normal loan, there are interests being charged. The difference between friendly and normal loan is usually depends on how much interest is charged.

Why is important to know the distinction between friendly loan and normal loan? It is because it is illegal for a person to lend money without a valid moneylender’s license. A ‘moneylender’ is a person who carries on or advertises or announces himself or holds himself out in any way carrying on the business of moneylending, whether or not he carries on any other business. 

If a person gives out a loan and charges interest which makes it a normal loan, and he has no moneylending license, the loan is illegal. An illegal loan cannot be enforced in court. Recently, a Federal Court case ruled that an unlicensed moneylender cannot even recover his principal, much less interest. Even a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending, until the contrary is proved.

Firstly, what is a loan? A loan is a transaction where one party agrees to lend money to another. In many cases, repayment of the loan comes with interest being charged. 

Loans are generally split between a friendly loan and a normal loan. What is exactly a friendly loan? A friendly loan is a loan given between associates, i.e. friends, family or acquaintances. Friendly loans usually have no interests charged or very minimal amounts only. Whereas in a normal loan, there are interests being charged. The difference between friendly and normal loan is usually depends on how much interest is charged.

Why is important to know the distinction between friendly loan and normal loan? It is because it is illegal for a person to lend money without a valid moneylender’s license. A ‘moneylender’ is a person who carries on or advertises or announces himself or holds himself out in any way carrying on the business of moneylending, whether or not he carries on any other business. 

If a person gives out a loan and charges interest which makes it a normal loan, and he has no moneylending license, the loan is illegal. An illegal loan cannot be enforced in court. Recently, a Federal Court case ruled that an unlicensed moneylender cannot even recover his principal, much less interest. Even a single loan at interest made by such person shall raise a presumption that such person is carrying on the business of moneylending, until the contrary is proved.

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