I first heard on the radio, about how the minimum annual income required to apply for unsecured credit is being lowered from $30k to $20k.
“It?s a double-edged sword,” said financial planner Leong Sze Hian. More low-income people could end up in debt as a result, but more access to credit would provide urgent relief for those who lose their jobs, he said. “
If the reason the limit has been lowered so that they can borrow money, than that’s insane! A $100 cash withdrawal from a credit card has $10-$15 in fees, and additional interest that accumulates daily. Their debt would end up snowballing and these “low-income people” would be in a much worst position than just ‘losing their job’.
On the other hand, letting these group of people have access to these credit might help increase consumer spending, and maybe help prevent some companies from closing down. How so? 3 words: 0% INSTALLMENT PLANS.
Do you have any idea how much stuff is now affordable and available via 12/24/36 month installment plans? No more crazy interest rates with Court’s in-store credit facilities. Hello new furniture, home appliances, vacations. That young couple can now get married earlier. It’s like opening Pandora’s box.
**correction @ Feb 26, 11.34pm** I typed too soon. Apparently, credit cards will still require a $30k annual income. These new group of people will only have access to loans (with still very obnoxious interest rates).
But learning how to manage credit doesn’t come overnight. After all, like what is said on this blog:
Have we learnt nothing from this crisis??!
How did the whole subprime mess start? Banks lent money to people with low income and these people defaulted on their debt.
Let’s hope that these new group of people will learn to use credit wisely. If not, they’ll help form the next crisis ahead – the credit card default crisis!
SOON, MORE CAN BORROW
Neo Chai Chin
THE timing seems appropriate. From Sunday, new rules on lending will kick in that the authorities believe will tread the line between discouraging overspending and facilitating responsible borrowing.
While commentators welcome the Moneylenders Act, which they feel would protect consumers from chalking up massive debts, concerns were raised about two groups :at opposite ends of the income spectrum: Those earning less than $20,000 annually, and those making over $120,000 a year.
The latter group of high-net-worth individuals are excluded from unsecured lending provisions, which stipulate borrowing caps.
The assumption is that they can handle their finances better, or at least are able to take on more debt, said Citigroup economist Kit Wei Zheng.
But there are exceptions, especially in these times – he noted, some could have borrowed more “on the assumption that his or her income stream will remain stable over time”, only to encounter strains with wage cuts or, indeed, retrenchment.
As for consumers with annual income below $20,000, they will now have the option of borrowing up to $3,000 in unsecured personal loans, with interest per annum capped at 18 per cent – there was no such provision for them previously.
“It?s a double-edged sword,” said financial planner Leong Sze Hian. More low-income people could end up in debt as a result, but more access to credit would provide urgent relief for those who lose their jobs, he said.
While the low-income will now have a “safer route to take when borrowing money”, there remains the “potential of increasing debt levels”, said Credit Counselling Singapore?s assistant director Tan Huey Min. “Whether it?’ll discourage people from turning to loansharks, is hard to say.”
Last month, the Singapore Police Force had noted the potential for a rise in loanshark activity as more seek to borrow illegally.
Overall, the changes to the moneylender rules will allow more individuals with genuine need greater access to unsecured credit. The minimum income requirement will be lowered to $20,000, though the threshold for credit cards remains at $30,000.
For unsecured loans, the credit limit is set at two times a borrower?s monthly income, if he earns between $20,000 and $30,000; and at four times his monthly income, if he earns $30,000 to $120,000. These provisions exclude study, renovation and medical treatment loans, for instance.
On the whole, Member of Parliament Ellen Lee said the new Act was timely. “It is in times like this that people have to be more cautious,” said Ms Lee, who had previously raised concerns about the relaxation of rules on licensed moneylending giving small-time borrowers a “false sense of
As for credit card holders, what of those whose incomes dip in these tough times?
Responding to feedback from the Association of Banks Singapore, the Monetary Authority of Singapore and Law Ministry said they could keep their cards, but banks should check cardholders? incomes periodically and not grant additional credit until the outstanding unsecured loan is paid
Latest statistics from Credit Bureau Singapore show the numbers of those missing credit card and personal loan payments were inching up, with those aged 30 to 34 making up the biggest proportion of delinquents.