MAS Just Placed a Borrowing Limit on Unsecured Credit – How Will It Affect You?

KNOW YOUR BORROWING LIMITS

Free-spending consumers are good news for retailers and businesses but the growing household debt of Singaporeans has prompted the government to step in to ensure that debts remain manageable amid expectations of rising interest rates.

Starting from 1 June 2015, borrowers with unsecured borrowings exceeding 24 times their monthly income for 3 consecutive months will no longer be able to access unsecured credit facilities from financial institutions (FI). This basically means that the borrower now has to make payments in cash.

The borrowing limit will be reduced in phases over the next four years as part of the Monetary Authority of Singapore’s (MAS) effort to keep debt levels in check. The borrowing limit will be reduced to 18 times monthly income from 1 June 2017 and to 12 times monthly income from 1 June 2019.

The new rules will affect some 32,000 borrowers, according to the MAS, which cited data from FIs and Credit Bureau Singapore as of end February 2015. This represents 2% of the total unsecured credit users.

WHAT IF YOUR UNSECURED DEBT EXCEEDS 12 TIMES MONTHLY INCOME?

First, check if your unsecured loan is exempted from the new rules. Loans for medical, education or business purposes do not count towards the borrowing limit. The borrowing limit applies only to interest-bearing balances incurred on unsecured credit facilities such as credit cards and unsecured personal loans.

Next, if your borrowing limit has indeed exceeded 12 times your monthly income before the implementation of the new rules on 1 June 2015, FIs have the flexibility of not suspending credit subject to a credit assessment on an exceptional and case-by-case basis. The grace period is up to end May 2019.

Additionally, a monthly instalment plan with preferential interest rates is also available to affected borrowers. Under the Repayment Assistance Scheme (RAS), eligible applicants enjoy a lower interest rate of 5% per annum for debts exceeding 12 times the monthly income over a period of 8 years. This is a huge discount over the current interest rate of about 24% charged by credit card companies. The RAS is available until 31 December 2015.

To be eligible for RAS, you need to:
• Be a Singapore Citizen or Permanent Resident,
• Earn less than S$120,000 per annum,
• Have net personal assets that are S$2 million or less,
• Have total interest-bearing unsecured debt on all credit cards and unsecured credit facilities with financial institutions in Singapore that exceeds 12 times your monthly income before June 2015; and
• Have good repayment records with your financial institutions (e.g. prompt in making monthly repayments under your unsecured credit facilities)

How to apply for RAS?
To apply, borrowers need to fill up the RAS application form, and mail it to Credit Counselling Singapore (CCS) with the documents listed below: –
1. Copy of NRIC (front and back)
2. Latest Credit Bureau report
3. Income Documents

Sources: Monetary Authority of Singapore, Association of Banks in Singapore

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