More stringent personal loan restrictions to kick in from next year

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The Monetary Authority of Singapore (MAS) said in 2015 that it will phase in and make more stringent personal loan restrictions. The restrictions to be implemented on the borrowing limit on unsecured credit facilities which was phased in over four years to give affected borrowers more time to gradually reduce their debts, will be tightened with effect from 1 June 2019.

By: Phoenix Lee/

personal loan restrictions
image credit: InvestmentZen

MAS announced in September 2013 that it planned to prohibit financial institutions (FIs) from granting further unsecured credit to a borrower whose outstanding unsecured debt across all FIs exceeds 12 times his monthly income for three consecutive months.

The more stringent personal loan restrictions in the form of borrowing limit applies only to interest bearing balances incurred on unsecured credit facilities such as credit cards and unsecured personal loans. This includes amounts rolled over on credit cards and balances outstanding on unsecured loans that accrue interest.

These stringent personal loan restrictions aim to help individuals avoid accumulating excessive debt.

MAS said that following further consultations with the Association of Banks in Singapore (ABS) and Credit Counselling Singapore (CCS), and feedback from the public, it had decided to give over-extended borrowers more time to adjust to the new measure.

MAS will therefore phase in the borrowing limit over four years:

  • 24 times monthly income from 1 June 2015;
  • 18 times monthly income from 1 June 2017; and
  • 12 times monthly income from 1 June 2019.

With the more stringent more stringent personal loan restrictions FIs will not be allowed to grant further unsecured credit to an individual whose unsecured borrowings exceed the prevailing borrowing limit for three consecutive months.

MAS acknowledged that the vast majority of unsecured borrowers in Singapore borrow within prudent limits, but that a small proportion of borrowers has accumulated significant unsecured debts. Citing data from FIs and Credit Bureau Singapore as of end February 2015, MAS said that 32,000 borrowers will be affected by the borrowing limit on 1 June 2015. They make up 2% of the total unsecured credit users.

MAS said that their borrowings pose no risk to the banking industry, and that the FIs’ aggregate non-performing loan ratio is low, at 1.1% as of end December 2014.

MAS reminded borrowers of personal loans to take active steps to manage their unsecured debts so that they do not become unsustainable. Although most borrowers do not spend or borrow beyond their means, some may need help to reduce their debts gradually.

MAS encouraged those who may be affected by the more stringent personal loan restrictions to act early and approach your FIs or CCS for assistance.

For a transition period, FIs will have the flexibility not to suspend credit for borrowers whose outstanding unsecured debt already exceeds 12 times their monthly income before 1 June 2015. Each application will, however, be assessed on an exceptional and case-by-case basis, subject to the FI’s credit assessment. The grace period is up to end May 2019.

Loans for medical, education or business purposes do not count towards the borrowing limit and need not be suspended when the borrowing limit has been exceeded.

Lowering of Unsecured Loan Limit – How does it affect you?

What this new stringent personal loan restrictions means is, if you exceed the industry-wide borrowing limit for 3 consecutive months, you will generally not be able to:

  • charge new amounts to your existing credit cards and/or other unsecured credit facilities with all financial institutions;
  • obtain credit limit increases on your existing credit cards and/or other unsecured credit facilities with all financial institutions; and
  • obtain new credit cards or other unsecured credit facilities from any financial institution.

The borrowing limit will start at 24 times of your monthly income from 1 June 2015 to 31 May 2017, and will be progressively lowered to 18 times of monthly income from 1 June 2017, and 12 times of monthly income from 1 June 2019.

This stringent personal loan restrictions does not apply to:

  • unsecured loans for needs-based purposes (e.g. business, medical and education);
  • borrowers with annual income of $120,000 or more; and
  • borrowers with net personal assets exceeding $2 million/

If your income has changed, MAS encourages you to update your income records with your financial institutions. This will help avoid any inadvertent suspension of your credit facilities as a result of outdated income information.

The stringent personal loan restrictions does not require affected borrowers to pay their existing debt immediately, but if they need assistance in reducing their existing debt, they may approach their financial institutions to work out repayment solutions.

An illustration of how this may affect you:

  • Peter’s monthly income is $5,000. 24 times of his monthly income is $120,000.
  • Peter has five credit cards with financial institution A, B, C, D and E with outstanding balances of $20,000 each.
  • He also has two unsecured credit lines with financial institution F and G with outstanding balances of $20,000 each.
  • Peter’s total interest-bearing outstanding balances across the financial institutions are therefore $140,000 – exceeding 24 times of his monthly income.

If based on Peter’s income records with the financial institutions, his total interest-bearing outstanding balances in March, April and May exceed 24 times his monthly income, his credit cards and unsecured credit lines will be suspended by all seven financial institutions by end June.

Peter will not be able to charge new amounts to his credit cards and unsecured credit lines until he reduces his interest bearing outstanding balances to below 24 times his monthly income and after financial institutions uplift the suspension based on credit assessment according to the latest income document submitted by Peter.

There are credit cards which will give you a credit limit even if you don’t earn 30K

With this stringent personal loan restrictions, if your unsecured outstanding balances with any financial institution are more than 60 days past due, you will not be able to:

  • charge new amounts to your existing credit cards and/or other unsecured credit facilities with that same financial institution;
  • obtain credit limit increases on your existing credit cards and/or other unsecured credit facilities with all financial institutions; and
  • obtain new credit cards or other unsecured credit facilities from any financial institution.

This is to prevent debt from spiralling for a borrower who has problems making the minimum payments on his existing debt.

Also, if you do not pay your unsecured debt in full, you will receive customized disclosures in your monthly bills detailing the total amount and time needed to fully pay off your debt if you pay only the minimum payment each month; and the amount of debt that would accumulate by the end of 6 months if you make no payments in the next 6 months.

This is to make the costs of borrowing more apparent to borrowers, and to show how debt can accumulate if monthly bills are not paid in full.

In addition to this stringent measures, in Dec 2017 also introduced a new measure to help borrowers avoid accumulating excessive unsecured debts – the Credit Limit Management Measure (CLMM).

The CLMM will cap the additional unsecured credit that an FI may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income. This measure has taken effect on 1 January 2018 and complements the existing industry-wide borrowing limit.

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