Leong Sze Hian
A local bank has been offering unsecured loans to those earning between $20,000 and less than $30,000 per annum.
The ad says that the interest per annum is 10 per cent.
However, the fine print says that the effective interest rate is 17.97, 18.16, 19.57, 19.19 and 18.80 per cent per annum, for loan periods of one to five years, respectively.
After factoring the 3 per cent processing charge and 1 per cent insurance fee, the effective rate for a one-year loan is actually 25.91 per cent.
This is even higher than the 24 per cent charged on credit cards.
Before the regulations were changed to allow banks to offer unsecured credit to those earning between $20,000 and $30,000 this year, the loans that these borrowers could access were from moneylenders and pawn-brokers, which had a cap of 18 per cent per annum on the interest that can be charged.
With interest rates at historical lows now, why are banks allowed to charge such high interest on unsecured credit, without any interest cap?
POSBank has always been regarded as the people’s bank. Practically everyone has had a POSBank account. Therefore, for POSBank to charge what is arguably the highest interest rates for unsecured credit, which is meant for the lower-income and less financially savvy Singaporeans, is something which I feel rather sad about, as we all grew up saving stamps initially and then pocket money with POSBank.
In countries like the United Kingdom, bank advertisements must show the effective interest rate, instead of “hiding” it in the small print, on top of other charges.
It was bad enough some years ago for POSBank to start charging $2 a month for accounts with an average daily balance of less than $500, but to now charge the highest interest for unsecured credit is alarming – and we all thought unsecured credit would help Singaporeans get legal affordable credit instead of having to go to loan sharks!
Maybe we could all go to credit co-operatives like the Telecom Credit Co-operative (www.tcc.org.sg) which does not charge a $2 fee for accounts less than $500.
By the way, I understand that it also pays one of the lowest interest rates for savings accounts, at 0.125 per cent for the first $50,000.