When cleaner Goh Chin Ann borrowed $400 from a licensed moneylender in August, the interest stated on the agreement worked out to just eight cents a day.
Yet, Credit88's contract also stated that he had to pay back the entire loan the very next day, or face a $600 late-fee charge.
At the same time, the firm in Jurong also handed him a separate card with his actual repayment plan - $200 a month, over five months. This "plan" was not listed in the loan agreement.
When the 62-year-old, who earns $1,000 a month, defaulted on one of his instalments, he was warned of the "very, very high" late fee.
He then borrowed $500 from two other licensed moneylenders - Assure Capital in Clementi and AP Credit in Anson Road. Both listed the annual interest rate at 3.72 per cent, about half that charged by Credit88.
Both contracts also required the entire loan to be paid up the next day, or he would risk incurring a late fee of $1,250.
Soon, the companies were telling him he had chalked up thousands of dollars in debt.
Struggling to escape the hole he had dug for himself, Mr Goh, who had taken the loans to feed his alcoholic and gambling addictions, sought help from Blessed Grace Social Services, a support group for gambling addicts.
It arranged new and longer repayment plans for Mr Goh, who does not understand English and speaks in Hokkien.
But he will still end up paying more than $1,000 in interest for what on paper were very cheap loans.
He said: "It was easy to get the loans and I was desperate."
The Straits Times contacted all three moneylenders, but none would comment on Mr Goh's contract terms.
Other licensed moneylenders, who spoke on condition of anonymity, said the high late fees are a "scare tactic" to deter borrowers from defaulting.
But "it also allows moneylenders to cover themselves". "In the event that questions are asked about the repayment schedule which differs from the contract, they can say that the sum includes the late fee charged", said one moneylender.
Moneylenders' Association of Singapore president David Poh admitted that it is not uncommon for licensed moneylenders to impose such hefty penalties, as there are no rules on late charges, only a cap on interest rates.
Moneylenders are allowed to charge borrowers who earn below $30,000 a year a maximum annual interest of 20 per cent. For a $400 loan, that works out to about $6.70 of interest payable a month.
"The only way for moneylenders to earn a profit from low-income borrowers is through late fees," Mr Poh told The Straits Times. "We encourage the authorities to cap such fees, so borrowers do not suffer."
The Registry of Moneylenders, which regulates the industry, said it was aware of the "very high late fees". An ongoing review will address, among other things, this issue of high borrowing costs to better protect vulnerable borrowers, a spokesman said.
Early last month, a 4 per cent cap on both monthly and late-payment interest rates was proposed by a government advisory committee. It also suggested that no other fees be allowed.
Said the committee's chairman, Mr Manu Bhaskaran, director of Centennial Group International, a policy advisory group based in Washington, DC, and adjunct senior research fellow at the Institute of Policy Studies: "It is precisely because of such practices that the committee was formed by the Law Ministry."
At a dialogue with licensed moneylenders on Nov 3, Law Minister K. Shanmugam said that the cap was necessary to protect vulnerable borrowers with little knowledge or leverage.
Many moneylenders protested, arguing that the proposed rules would kill their business.
They also insisted that they did not target low-income borrowers, and usually turn them away, as it made little financial sense to loan small sums to them, given the limit on interest rates.
But according to gambling and debt support groups, moneylenders are more than willing to provide short-term loans to this group.
Said Mr Dick Lum, executive director of One Hope Centre, which counsels gambling addicts: "A lot of people who come to us for help are low-income earners who owe debts to licensed moneylenders."
Ms Tan Huey Min, general manager of Credit Counselling Singapore, a charity that provides counselling to those in debt, criticised the hefty late charges.
"Who can pay back the debt in one day? To give a loan at a low interest rate for one day and penalise the borrower with late fees is not right. It's unfair and unethical. These moneylenders are like a wolf in sheep's clothing.
"And because these moneylenders are near people's homes, they're especially tempting to those who borrow to gamble."
A cook, who declined to be named, told The Straits Times what happened after he borrowed $300 in February from a moneylender in Geylang. He was told to pay $130 each week, for four weeks.
That meant $220 in interest. According to the rules, he should have been charged a maximum of $4.60 for the four-week loan.
"I was told the late fees were very high, so I borrowed from another moneylender to pay the first one when I didn't have enough money," said the 65-year-old, who earns $1,450 a month.
He now owes $9,000 to 11 moneylenders.
"Sometimes, moneylenders will call me to offer a loan. It's strange that they have my particulars, even though I have not contacted them before."
Mr Vikram Nair, a lawyer and an MP for Sembawang GRC who sits on the Government Parliamentary Committee for Home Affairs and Law, said he is not sure if licensed moneylenders should be completely prohibited from operating in the heartland but he supports the recommendations made by the advisory committee.
"I have seen variations of some of the contracts. Some have very low interest rates but charge very high penalty fees. There's no clear legislation right now. It will be good to have laws to cap the interest rates and absurd penalty fees," he said.
"But the main risk is that it may encourage some borrowers unable to get legal loans to turn to illegal moneylenders."