Unlike a bank, a licensed moneylender lends its own capital, and the price of that is capped by law. Knowing the cap turns “is this a fair rate?” into a yes/no question.
| Loan type | Maximum interest | Interest type |
|---|---|---|
| Secured (with collateral) | 12% p.a. | Simple |
| Unsecured (no collateral) | 18% p.a. | Simple |
“Simple” is the word that matters
The cap is on simple interest — calculated only on the principal, never on accumulated interest. A lender charging interest on interest (compounding) on an ordinary moneylending loan is operating outside the Act. The loan-shark trademark of “the debt keeps growing no matter what I pay” is precisely what these caps and the no-compounding rule exist to prevent.
Any quote above 18% per annum, or any structure where the amount owed compounds, falls outside the legal cap. A “small” weekly percentage that sounds harmless — say 10% a week — annualises into the hundreds of percent and is the mathematics of an ah long, not a licensed lender.
Check a quote in ten seconds
- Is the quoted annual rate at or below 18% (unsecured) / 12% (secured)? If higher, illegal.
- Is it simple interest on the principal only? If it compounds, illegal.
- Is the total repayable written in the Schedule J/K agreement? If not, walk away.
For the full picture of your rights and how to verify the lender itself, see the licensed moneylenders guide.
Going deeper
Why ‘simple’ interest is the whole protection
The cap on a licensed moneylender’s rate matters, but the word doing the heavy lifting is “simple.” Simple interest is charged only on the original principal, never on accumulated interest. Compound interest charges interest on interest, which is how a debt can balloon even as you make payments. The loan-shark nightmare of “I keep paying and somehow owe more” is compounding at work. By capping the rate and requiring simple interest, the Moneylenders Act 1951 removes both levers that turn borrowing into a trap.
Simple vs compound on RM5,000
Interest = 5,000 × 18% = RM900 (fixed)
————————
If a lender illegally COMPOUNDED weekly instead:
The balance would grow on itself — far above RM900
Simple-interest cap = your built-in protection
Under the legal cap, the cost is predictable and fixed to the principal. Compounding — illegal on these loans — is what makes ah long debt spiral. If your balance grows on itself, the lender is breaking the law.
Tips for checking a quoted rate
Rate-check checklist
- Annual rate at or below 18% unsecured / 12% secured
- Interest confirmed as simple, not compound
- Total repayable stated in the agreement
- No fees that push the real cost over the cap
- Loan type (secured/unsecured) clearly identified
Frequently asked questions
What’s the maximum interest a licensed moneylender can charge?
12% per annum on a secured loan and 18% on an unsecured loan, as simple interest. Anything higher, or any compounding, is outside the Moneylenders Act 1951.
What does ‘simple interest’ mean?
Interest charged only on the original principal, never on accumulated interest. It keeps the cost predictable and stops a debt growing on itself.
Is a 10%-per-week loan legal?
No. Annualised, that’s several hundred percent — far above the 18% p.a. cap. It’s the mathematics of an ah long, not a licensed lender.
Can fees push the cost above the cap?
Extra charges shouldn’t be used to disguise an over-cap cost. Always get the total repayable in the Schedule J/K agreement and check it against the cap.