What is the difference between a loan company and a bank?

Banks receive and process deposits and withdrawals. They safeguard your money for you. Banks also give out loans, but they are not the same as loan companies. 

Loan companies give out loans only (they do not safeguard your money) and will require you to make repayments for your loan. Loan companies usually charge higher interest rates than banks, so be careful not to get confused with the use of the term “bank” to refer to loan companies.

Many loan companies create special offers targeted specifically to migrant domestic workers that try to tempt you into taking out a loan. Be very careful as the terms can often be unfair or illegal.

Think first before taking out a loan

If you do feel you have to take out a loan, explore several options and choose a loan company which you feel comfortable with and which offers you fair terms. We encourage you to consider lending from an ethical source. As much as possible, avoid getting into a cycle of debt and make sure you are protected. Before signing a loan, first ask yourself:

• Is the loan for a ‘need’ or a ‘want’?

• Is the lender licensed? Unlicensed money lenders give illegal loan terms.

• Will I receive certified documents (e.g. contracts, receipts, statements) for my records?

• Do I understand the loan terms? Can I afford the monthly repayment and the late payment fees?

• Will the lender keep my passport? It is illegal for anyone to do this except for me and the authorities. 

Learn how to plan your future expenses to avoid taking unnecessary loans through our Money Wise Migrants workshop.