What Does 4% Per Month Actually Cost You? The Maths Most People Don’t Do

Sam Soh 09 April 2026

What Does 4% Per Month Actually Cost You? The Maths Most People Don’t Do

Before you dismiss or accept a licensed moneylender loan, run the numbers. Here’s how.

Ask most Singaporeans what they think about borrowing from a licensed moneylender, and the reaction is usually the same. The interest rate sounds alarming. 4% per month. That’s 48% per year. Compared to a bank personal loan sitting at anywhere between 3 and 7% per annum, it sounds almost predatory.

But most people are comparing two numbers that aren’t calculated the same way. And that gap in understanding — between what the rate sounds like and what it actually costs — is where a lot of bad decisions get made.

This piece is about the real maths. Not to make licensed moneylender loans sound cheap — they aren’t. But to give you an accurate picture so you can make a decision based on reality rather than the number that sounds scariest.

Table of Contents

First, understand how the interest is actually calculated

This is the part almost nobody explains clearly.

When a licensed moneylender charges 4% per month, that interest is calculated on your reducing balance — not on the original amount you borrowed. This is a legal requirement under the Moneylenders Act. Every repayment you make reduces your outstanding principal, and the following month’s interest is calculated on that lower number.

Your monthly instalment is also fixed for the entire loan. What changes each month is the split inside that instalment — early months carry more interest, later months carry more principal. But the amount leaving your account stays the same throughout.

This is exactly how bank loans work. The difference is simply the rate.

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The actual numbers across common loan amounts

The three scenarios below use the maximum legal rate of 4% per month on a reducing balance, with a fixed monthly instalment and no late fees. These are worst-case numbers — many licensed moneylenders charge below the cap, particularly for borrowers with stronger profiles.

Scenario 1: $3,000 over 3 months

Fixed monthly instalment: $1,081.05

Month	Opening Balance	Interest (4%)	Principal Repaid	Monthly Payment
1	$3,000.00	$120.00	$961.05	$1,081.05
2	$2,038.95	$81.56	$999.49	$1,081.05
3	$1,039.46	$41.59	$1,039.46	$1,081.05
	Total	$243.15	$3,000.00	$3,243.15

On a $3,000 loan over 3 months, you pay $243.15 in total interest. That works out to 8.1% of the principal — not 48%. Notice also how the interest portion drops each month: $120 in month one, $81.56 in month two, $41.59 in month three. That’s the reducing balance at work.

For a short-tenure loan covering a specific urgent expense, $243 in total interest is a number most people can evaluate clearly and rationally. It’s no longer an abstract percentage — it’s a concrete dollar figure.

Scenario 2: $5,000 over 6 months

Fixed monthly instalment: $953.81

Month	Opening Balance	Interest (4%)	Principal Repaid	Monthly Payment
1	$5,000.00	$200.00	$753.81	$953.81
2	$4,246.19	$169.85	$783.96	$953.81
3	$3,462.23	$138.49	$815.32	$953.81
4	$2,646.91	$105.88	$847.93	$953.81
5	$1,798.98	$71.96	$881.85	$953.81
6	$917.13	$36.68	$917.13	$953.81
	Total	$722.86	$5,000.00	$5,722.86

On a $5,000 loan over 6 months, you pay $722.86 in total interest. That’s 14.5% of the principal. Double the tenure of Scenario 1, and your interest cost as a proportion of the loan nearly doubles too. The pattern is starting to become visible.

Also worth noting: by month 6, the interest component of the instalment has fallen to just $36.68. The majority of that final payment is principal. That’s how a reducing balance loan is supposed to work — you pay more interest early and less as the loan winds down.

Scenario 3: $10,000 over 12 months

Fixed monthly instalment: $1,065.52

Month	Opening Balance	Interest (4%)	Principal Repaid	Monthly Payment
1	$10,000.00	$400.00	$665.52	$1,065.52
2	$9,334.48	$373.38	$692.14	$1,065.52
3	$8,642.34	$345.69	$719.83	$1,065.52
4	$7,922.51	$316.90	$748.62	$1,065.52
5	$7,173.89	$286.96	$778.56	$1,065.52
6	$6,395.33	$255.81	$809.71	$1,065.52
7	$5,585.62	$223.42	$842.10	$1,065.52
8	$4,743.52	$189.74	$875.78	$1,065.52
9	$3,867.74	$154.71	$910.81	$1,065.52
10	$2,956.93	$118.28	$947.24	$1,065.52
11	$2,009.69	$80.39	$985.13	$1,065.52
12	$1,024.56	$40.98	$1,024.56	$1,065.52
	Total	$2,786.24	$10,000.00	$12,786.24

On a $10,000 loan over 12 months, you pay $2,786.24 in total interest. That’s 27.9% of the principal — and this is the figure that deserves your full attention.

The rate hasn’t changed. It’s still 4% per month across all three scenarios. But the cost as a proportion of what you borrowed has gone from 8.1% to 14.5% to 27.9% simply because the tenure got longer. You are not being charged more per month — you are simply paying for more months, each of which carries its own interest cost on the remaining balance.

That’s not a criticism of the product. It’s how every amortising loan works, at any interest rate. But at 4% monthly, the effect of tenure is amplified, and it’s worth understanding before you sign.

What the three scenarios tell you together

Loan Amount	Tenure	Monthly Instalment	Total Interest	Interest as % of Principal
$3,000	3 months	$1,081.05	$243.15	8.1%
$5,000	6 months	$953.81	$722.86	14.5%
$10,000	12 months	$1,065.52	$2,786.24	27.9%

The pattern is impossible to miss. A 3-month loan costs you 8 cents in interest per dollar borrowed. A twelve-month loan costs you nearly 28 cents. Same rate throughout. The tenure is doing all the work.

This leads to the single most practical piece of advice for anyone considering a licensed moneylender loan: borrow short wherever your cash flow allows. You cannot negotiate the rate — it is what it is. But you can control how long you hold the debt, and that decision has a bigger impact on your total cost than almost anything else.

How this compares to your other options

The scenarios above use the maximum legal rate. Many licensed moneylenders charge below 4% per month, so your actual cost may be lower than the figures shown.

More importantly, consider what you might already be paying elsewhere.

Credit card interest in Singapore runs at around 25 to 27% per annum. But unlike a licensed moneylender loan, it compounds on your full outstanding balance every month when you don’t clear it in full — and there is no fixed end date. A $5,000 credit card balance where you are making only minimum payments will cost you a comparable amount in interest to Scenario 2, except six months later your balance will barely have moved. The licensed moneylender loan, for all its higher rate, at least has a guaranteed end date. By month 6 in Scenario 2, the balance is zero.

That said, a bank personal loan at 6 to 7% EIR is almost always the cheaper option if you can access one. The point isn’t that licensed moneylenders are better than banks. The point is that the comparison that matters is between your actual available options — not between a licensed moneylender rate and a bank rate you may not qualify for.

The legal protections most borrowers don’t know about

Two protections under the Moneylenders Act significantly limit what a licensed moneylender can charge you — and they are worth knowing before you borrow.

The total cost cap

The total amount you repay — including all interest, all fees, and all late charges — cannot exceed double the amount you originally borrowed. Borrow $5,000 and the absolute maximum you will ever repay, under any circumstances, is $10,000. The debt cannot spiral beyond that point by law.

Late charges are capped too

If you miss a payment, late interest is capped at 4% per month on the overdue amount only — not your entire outstanding balance. The late fee itself is capped at $60 per month regardless of loan size. There are no uncapped penalty structures that can compound uncontrollably.

These are not minor protections. They are the structural difference between a regulated lending system and an unregulated one — and the reason why conflating licensed moneylenders with loan sharks is not just unfair but factually incorrect.

When the maths works — and when it doesn’t

The maths works when:

You keep the tenure short — three months looks very different from twelve as the numbers above make clear
You are solving a specific, finite problem — a medical bill, an urgent repair, a gap between paydays with a known resolution date
Your alternative is revolving credit card debt at 26% with no fixed end date
A bank has declined you and the expense genuinely cannot wait

The maths doesn’t work when:

You are stretching to twelve months or beyond without a clear and realistic repayment plan
You are funding something speculative — an investment or business with uncertain returns
You are already carrying other debt and an additional fixed monthly commitment will put your cash flow under strain
You qualify for a bank loan at a significantly lower rate — always exhaust that option first

The bottom line

4% per month sounds alarming. But the headline rate is not what you pay — what you actually pay is determined by the loan amount, the tenure, and whether you make your instalments on time.

For a short-tenure loan used for a specific purpose, the total cost is considerably more manageable than the headline rate suggests. For a longer-tenure loan, the cost climbs meaningfully — and that is worth understanding clearly before you commit.

Neither of those is a reason to avoid licensed moneylender loans categorically. They are reasons to understand them accurately, choose your tenure wisely, and go in knowing exactly what the loan will cost you from the first instalment to the last.

Run the numbers before you decide. The maths is not your enemy here — misunderstanding it is.

I’m not a financial advisor and this isn’t financial advice. These calculations are illustrative and based on maximum legal rates using a reducing balance method. Actual loan terms vary by lender and borrower profile. Always verify that any lender you approach is licensed via the Registry of Moneylenders at www.mlaw.gov.sg before signing anything.

Sam Soh

Founder of Money Kinetics. Marketing background, loan industry obsessive. I write about borrowing decisions, financial stigma, and what the global economy actually means for your wallet — without the financial advisor disclaimers or the bank brochure language. Not here to tell you what to do. Here to make sure you're asking the right questions.