New plan to help borrowers cut debt
The Straits Times article on 18 January, “New plan to help borrowers cut debt” states that “The rule change will likely catch out many people.”
Monetary Authority of Singapore is bringing changes to the regulation on unsecured debts that specifies amount one can borrow.
By June this year, one’s debt cannot exceed 18 times a borrower’s monthly pay and in June 2019, this amount will drop to 12 times – half the limit of the 24 times of monthly income now. Unsecured debts are those with no collateral, such as red ink run up on a credit card, personal loans or overdrafts.
4% of unsecured credit borrowers owed over 12 months’ income
A MAS spokesman said: “As of November 2016, about 4 per cent of unsecured credit borrowers in Singapore had outstanding interest-bearing unsecured debt exceeding 12 times their monthly income, down from 5 per cent in May 2015.”
11,000 out of 32,000 applied – only 6,000 successful?
The plan comes after an on-off repayment assistance scheme, set up in April 2015. It ended in December that year. Out of the 11,000 applications for that plan, said Mrs Ong-Ang, 6,000 were approved. About 70 per cent of the 6,000 cases were by those aged between 30 and 50, and 60 per cent had an annual pay of between $30,000 and $60,000.”
32,000 owed more than 24 months’ income?
In this connection, according to “MAS Will Phase In Borrowing Limit on Unsecured Credit” (6 April 2015) – “Based on data from FIs and Credit Bureau Singapore as of end February 2015, 32,000 borrowers will be affected by the borrowing limit on 1 June 2015. They make up 2% of the total unsecured credit users”.
So, of the 32,000 borrowers with more than 24 months’ of income unsecured credit debt – only 11,000 applied and only 6,000 were approved.
Does this mean that the participation rate was only about 18.8 per cent (6,000 divided by 32,000)?
Original scheme – lower % on amount exceeding 12 months’ income debt?
As to “This new repayment scheme follows the Repayment Assistance Scheme (RAS) which expired in December 2015. The RAS only offered lower interest rates and an eight-year repayment period for amounts in excess of 12 times a borrower’s income, whereas the DCP will cover all of a borrower’s unsecured credit balances” – one of the primary contributing factors to this low participation rate of about 18.8 per cent, may be that the RAS scheme only offered lower interest rates “for amounts in excess of 12 times (of) a borrower’s income”.
In other words, the interest rate on the first 12 times of the borrower’s income debt was not reduced (compared to the interest rate of the amount above 12 times) under the RAS.
New revised scheme – lower % on entire income debt?
So, is it fair for those who took up the RAS – now that the DCP will reduce the interest rate from the first dollar – on the entire debt of the borrower?
Can switch from original scheme or apply under new scheme?
Also, does it mean that the 21,000 (32,000 – 11,000) who did not apply under the RAS can now apply under the DCP and be better off?
Can the 6,000 successful RAS applicants change to the DCP in order to enjoy the lower interest rate on their entire debt, instead of just on the excess amount of their 12 months’ income unsecured credit debt?
By the way, since 32,000 was two per cent of unsecured borrowers with more than 24 months’ income unsecured credit debt in February in 2015 – does it mean that the total number of unsecured borrowers was about 1.6 million (32,000 divided by 0.02)?
64,000 with more than 12 months’ income debt?
If so, then does “As of November 2016, about 4 per cent of unsecured credit borrowers in Singapore had outstanding interest-bearing unsecured debt exceeding 12 times their monthly income, down from 5 per cent in May 2015” – mean that the number of unsecured borrowers with more than 12 times their monthly income’s outstanding unsecured debt is about 64,000 (1.6 million x 4%)?
Isn’t this arguably, quite a lot of people?
How many in debt?
If we count the unsecured borrowers with more than say six months’ income of unsecured credit debt outstanding – how many people are we looking at?
If we count all the other people who may have dropped out of this statistic because they signed on to the RAS, Credit Counseling Singapore’s debt restructuring schemes, became bankrupt, etc – how many people in total are we looking at?
Go to moneylenders?
Also, when we freeze or terminate the credit of these borrowers – wouldn’t some of them be driven to licensed or unlicensed moneylenders at even higher interest rates?
Half the picture?
Arguably, looking at the debts situation from the perspective of only unsecured debts like credit cards, personal loans or overdrafts – may only be half the picture. Perhaps we could at least include licensed moneylenders so that the picture becomes bigger and clearer.
Household debt is growing dramatically, reached a record 61.1% of GDP
According to ValuePenguin’s article “Household Debt in Singapore – Trends and Causes Analyzed“, it stated that household debt is growing dramatically as a percent of household assets and pointed out that such trend was especially true for personal loans and credit card debt, which now account for over 22% of total household liabilities in Singapore, up from 16% in 2007.
In the 2nd quarter of 2016, household debt reached a record 61.1% of GDP in Singapore. (“Record household debt: Economic model not sustainable?”.