How Personal Loans are Treated in Singapore

November 9, 2023 Personal Loans
How Personal Loans are Treated in Singapore

How Personal Loans are Treated in Singapore

In Singapore unsecured credit, such as credit card debt and personal loans, are loans that are not backed by collateral. Interest rates charged on these kinds of loans are often high as a result. Specific measures have been put in place to protect borrowers from accumulating too much of such debt.

Singapore's central bank has implemented measures to prevent individuals from accumulating excessive unsecured debts. The new rules, effective since January 1, 2018, cap additional unsecured credit for borrowers whose outstanding debts exceed six times their monthly income. Financial institutions are prohibited from granting any increase in credit limits that would cause the total credit limit to exceed 12 times the borrower's monthly income. These rules complement an existing borrowing limit, currently set at 18 times a borrower's monthly income, which will be lowered to 12 times from June 2019. The central bank's goal is to maintain a healthy unsecured credit situation while curbing the rising indebtedness of some borrowers.

The Personal Loan Rules by Monetary Authority of Singapore

Due to the MAS's (Monetary Authority of Singapore) regulations on Balance-To-Income (BTI) ratio, your unsecured credit facilities limit cannot exceed 12 times of your monthly income.

If your total interest-bearing outstanding on all credit cards and unsecured credit facilities with all Financial Institution (FI) in Singapore exceed the industry-wide borrowing limit for 3 consecutive months, your account will be suspended and you will not be able to:

  • Charge new amounts to your existing credit card(s) and/or use other unsecured credit facilities with all financial institutions;
  • Obtain credit limit increases on your existing credit card(s) and/or other unsecured credit facilities with all financial institutions;
  • Apply new credit cards or other unsecured credit facilities from all financial institutions.

What happens if you exceed your personal loan limits in Singapore?

If your total unsecured debt exceeds the borrowing limit for 3 consecutive months

You cannot:

  • Apply for a new credit card, unsecured facility or increase in credit limit.
  • Use your existing credit card, or draw down on your unsecured facilities.
  • The borrowing limit is 18 times monthly income and will be reduced further to 12 times monthly income from 1 June 2019.

This is to discourage long-term reliance on unsecured credit and reduce the rate of debt accumulation.

What if you are 60 days or more past due on any personal loans in Singapore?

If you are 60 days past due on any credit card or unsecured facility You cannot:

  • Apply for a new credit card, unsecured facility or increase in credit limit.
  • Use your existing credit card, or draw down on your unsecured facilities.

This measure is to prevent debt from snowballing if there are difficulties even repaying the existing debt.

If you have not paid your credit card bill and revolving unsecured credit facilities in full your bank has to make it clear how your debt will accumulate if left unpaid. They will send you a statement with the following information:

  • Total amount and time needed to fully pay off your debts if you only pay the minimum amount each month.
  • The total amount of debt that will accumulate by the end of 6 months if you don't make a payment in the next 6 months.

Several assistance and repayment plans, such as the Debt Consolidation Plan, are available to help these borrowers pay down their existing debts.

When are Credit bureau checks ran in Singapore?

Your creditworthiness affects the amount you can borrow. Singaporean Banks must conduct credit bureau checks on you:

  • Before granting a new credit card or unsecured credit facility
  • Before granting a credit limit increase
  • After receiving information that may cast doubt on your creditworthiness

The credit bureau reports include information on your aggregate credit limits and outstanding debt balances across all banks, as well as any late payments, defaults and bankruptcies.

This information helps your bank grant loans that are within your ability to repay.

Help with paying your debt in Singapore

Are you having trouble managing your debt? Rolling over or missing payments is only going to make matters worse.

You can improve your debt situation by taking the following steps:

  • Get your credit report and assess the total amount of debt you have.
  • Talk to your bank about moving the outstanding balances on your credit card and unsecured loans into a debt repayment plan. See if you can repay your debt by installments.
  • Don't borrow from other sources to pay off your debts without comparing the interest charges and fees.
  • Stop charging to your credit cards or drawing down on your unsecured loans. Put away your cards and your credit lines!
  • Pay the debts which incur higher interest first but look out for penalties.
  • Contact Credit Counseling Singapore if you need advice on managing your debt.
  • Apply for a Debt Consolidation Plan if you have unsecured debts exceeding 12 times your monthly income. Your debts from across all banks will be consolidated under one bank. Repayment will be at a lower interest rate for up to 10 years.

What are the documents required are Personal Loans in Singapore?

For Singapore Citizens and Permanent Residents

For Salaried Employee, Salary Crediting into DBS (Development Bank of Singapore) / POSB (Post Office Savings Bank) Account; or Latest Computerized Payslip; or Latest 12 months’ CPF (Central Provident Fund) contribution History Statement; or Latest Income Tax Notice of Assessment with Salary Crediting into DBS (Development Bank of Singapore) /POSB (Post Office Savings Bank) Account; or Latest Computerized Payslip.

For Variable / Commission-based Employees, Latest 12 months’ CPF (Central Provident Fund) contribution History Statement; or Latest Income Tax Notice of Assessment

For the Self-Employed, Latest 2 years’ Income Tax Notice of Assessment.

For Foreigners, Employment Pass with at least 6 months validity; and Latest Computerized Payslip; or Company Letter certifying Employment and Salary (in Singapore dollar currency), dated within 3 months from the date of credit card application. Latest Income Tax Notice of Assessment with Latest Computerized Payslip; or Company Letter certifying Employment and Salary (in Singapore dollar currency), dated within 3 months from the date of credit card application.

Notes about Personal Loan Documents required in Singapore

  1. Your salary must be credited via GIRO (General Interbank Recurring Order), to your own DBS/POSB Account for the last 3 consecutive months and your current annual income meets our minimum income criteria. Salary credited into joint account will not be considered.
  2. Please note that your CPF documents submitted online with Singpass is only available for up to 7 days from the date of your submission.
  3. You can now download your Income Tax Income Notice of Assessment at myTax Portal with your Singpass or IRAS Pin. The service is free. Log on to https://mytax.iras.gov.sg for more details.

What is the Borrowing Limit in Singapore?

The industry-wide borrowing limit took effect on 1 June 2015 and it is progressively lowered over 4 years.

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

Notes about Borrowing Limits in Singapore

Your limit is computed by taking your aggregate interest-bearing unsecured outstanding balance across all financial institutions, divided by monthly income. To find out more on the computation, please refer to the below frequently asked questions.

Calculating Aggregate Outstanding Debt in Singapore

Aggregate outstanding debt refers to a borrower’s total debt across all financial institutions. When determining the borrowing limits for unsecured credit, only interest-bearing unsecured debt needs to be calculated. This includes:

  • Outstanding amounts rolled over on credit cards (i.e. amounts charged to cards that are not repaid in full by the due date).
  • Outstanding amounts on unsecured loans that accrue interest.
  • Interest imposed on any other debt, e.g. on a late payment of an otherwise interest-free installment plan.

When a Suspension Can Be Lifted in Singapore

A suspension as a result of the borrowing limit can be lifted only after:

  • The borrower reduces their debt below the prevailing limit.
  • The Financial Institution has conducted fresh credit bureau and income checks on the borrower.

Financial Institutions have the additional discretion to lift the suspension and issue new facilities to consolidate and refinance the borrower's existing debts with other FIs.

Financial Institutions are also allowed to exceed the regulatory credit limits as part of such debt consolidation.

These concessions are to enable the borrower to benefit from refinancing debt at lower interest rates by consolidating their debt with one FI.

Conclusion

In conclusion, navigating the world of personal loans in Singapore requires a clear understanding of the regulations and measures in place to protect borrowers and promote responsible borrowing. The Monetary Authority of Singapore (MAS) has implemented rules to cap unsecured credit, safeguarding individuals from accumulating excessive debt. With careful consideration and adherence to borrowing limits, borrowers can make informed decisions about their financial needs and avoid long-term indebtedness.

Utilizing debt repayment plans and exploring debt consolidation options can also help borrowers manage their finances effectively. By staying informed and seeking professional advice if needed, individuals can make the most of personal loans while maintaining financial stability in Singapore.

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About The Author

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Andy Chang

Founder of TheCreditReview

Andy Chang is the founder of TheCreditReview, a review site started in 2017 that is dedicated to helping consumers find the best companies in financial services. Andy is passionate about financial education and wellness, and helping others reach financial freedom. He consistently writes about topics ranging from credit to banking and lending.


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