I refer to the article “Plunge in number of people with unsecured loans as curbs take effect” (Straits Times, Jun 9).
It states that “In March, there were 14,000 borrowers who had racked up unsecured debt of more than 24 times their monthly income – with interest piling up. They owed $2.2 billion in total.
This is down from the 32,000 borrowers in February 2015 who had run up unsecured debt of more than 24 times their monthly income, according to the Monetary Authority of Singapore (MAS). At that point, these borrowers owed $4 billion – almost twice the current debt level for this group.
Unsecured debt includes debt on credit cards, overdraft facilities and personal loans for which there is no collateral. It usually attracts higher interest – upward of 24 per cent in the case of credit cards.”
Since the above cited statistics is only for the reduction in “unsecured debt of more than 24 times their monthly income” – what is the total debt change for different “number of times of monthly income” – such as 18, 12 and 6 months?
In this connection, the Total Value of Loans of licensed moneylenders increased by $300 million or 87 per cent, from $346 million in 2012 to $646 million in 2015.
We should also try to curb the increase in moneylenders’ loans, as curbs to reduce unsecured debts may have driven some borrowers to licensed and unlicensed moneylenders.
Moreover, the interest rates on licensed moneylenders is higher than the typical 25 per cent per annum on credit cards – at as much as 4 per cent per month.
The interest rates of unlicensed (illegal) moneylenders is even higher.
“For loans contracted between 1 June 2012 and 30 September 2015 … if your annual income is less than $30,000, the interest rate which moneylenders can charge, for both secured and unsecured loans, is capped at:
13 per cent Effective Interest Rate for secured loans; and 20 per cent Effective Interest Rate for unsecured loans.
However, from 1 October 2015, the maximum interest rate moneylenders can charge is 4% per month. This cap applies regardless of the borrower’s income and whether the loan is an unsecured or secured one.
Why is it that the interest rate cap for borrowers’ with less than $30,000 income, is increased from 13 or 20 per cent per annum, to 4 per cent per month?