Nicolas Cary, Co-Founder & President, Blockchain
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Unsecured Loans are often the bread and butter of many individuals living in Singapore. It is a way for them to survive the high cost of living in Singapore.
The MAS has allowed individuals to obtain personal loans when they have the best need it. However, the recent guidelines have shown that they are going to reduce the loan limits further.
Historical Loan Limits
If you want to know the historical loan limits, they are the following:
- The original loan limit is up to 24 times the monthly limit.
- Since 2015, the unsecured loan limit has been reduced from 24 times the monthly limit to 18 times in 2017.
- By 2018, the unsecured loan limit is reduced to up to 12 times the individual’s monthly income.
The main purpose of this requirement is to make sure that the individual would have the capacity to pay his loan and not be too unduly burdened by it.
The basis of the rule is simple. If there are only 12 months in a year, there is no sense in allowing the borrower to obtain up to 24 times his monthly income as that is an undue burden.
The Credit Bureau of Singapore has released the following information about the credit situation in Singapore.
- There was a 6.65% increase in the total number of new credit applications in the second quarter of 2018 over the first quarter of 2018.
- Personal loan applications also have the highest growth of 11.4% increase from last quarter.
Is there a limit to the limit? Yes. The rule on monthly limits does not apply if the unsecured loans are for the following situations:
- When it is intended for business, and there is a requirement and business plan submitted;
- When it is to be used for medical purposes;
- When it is intended for educational purposes; and
- Those borrowers who have an annual income of at least S$120,000 and borrowers with net personal assets exceeding S$2 million.
Let us discuss the mathematics in this new limit:
Before, if you have a monthly income of S$5,000, it means that your new limit is up to S$60,000. If you have at least three credit cards with different financial institutions, you should have only had an outstanding balance totaling S$65,000.
Today, if you have a problem with an outstanding balance that exceeds S$60,000 or at least 12 times your monthly income for the last three months, you will be suspended and cannot charge any new loans until you have paid off your loan up to less than your outstanding balance.
Is this the only limit that I must look out for?
No, the MAS has implemented the Credit Limit Management measure to cap the additional unsecured credit. This is done so that the institution may extend to a borrower only those whose outstanding unsecured debts exceed six times his monthly income at the start of the year. This tight threshold is to make sure that the individual would have the capacity to pay off his debts and not have too much of it.
Are the measures for unsecured loans effective?
The MAS would always study the system before they are required to the public. They are characterized by the following:
- They are well-founded and have undergone an excessive system of study.
- They target individuals with excessive debt, not to mainly prevent them from loans but to help them get out of debt.
- They target individuals to restrain them from having to borrow more.
- This is to prevent them from the risk of being in default and delinquency.
- Finally, the measures are intended to prevent the borrowers from being declared in bankruptcy.
What is the end game?
In terms of the banks and the banking systems, the banks are aided from their high exposure to high-risk borrowers.
The end game is to make sure that there will be greater stability of the financial system in Singapore. The truth of the matter is that there are not a lot of people who support the new guidelines, but this is for the good of Singapore.
If you are affected by the above regulation, you can always get a loan from licensed moneylenders as they have their own loan limits which is different from banks. Visit Loan Advisor financial directory for reviews on licensed money lenders to get the best loan rates possible.