Singapore

'Under one roof' scheme to help borrowers repay debt

New plan will see eligible person's unsecured credit balances consolidated under just one financial institution

A new scheme to help borrowers reduce their debt burden starts on Monday.

The debt consolidation plan, as it is called, targets people who will be affected by upcoming changes in borrowing limits.

Under these rules, which start in June, unsecured debts cannot exceed 18 times a borrower's monthly pay.

In June 2019, that drops to 12 times - half the limit of the 24 times monthly income that is prevailing now.

Unsecured debts are those that have no collateral, such as credit card debt, personal loans or overdrafts.

The rule change will likely catch out many people.

A Monetary Authority of Singapore 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."

Under the new scheme, an eligible person's unsecured credit balances - these could be held across any of the 14 participating financial institutions - will be consolidated with just one institution, which could reduce fees and other costs while laying out a simpler repayment process.

Credit Counselling Singapore general manager Tan Huey Min noted: "Banks will assess if applicants are a 'good risk' to take on.

"The repayment terms and conditions should be better as this becomes just one loan you pay down over time, instead of a revolving facility, so the interest rate should be more attractive than the typical 16 to 28 per cent a year, with one repayment date to remember."

ONE PLAN AT A TIME

An applicant, who has to meet criteria, can have only one debt consolidation plan under way at a time, said the Association of Banks in Singapore (ABS).

Once a bank of the borrower's choice approves the application, the lender will take over the outstanding balances, fees and interest charges from other banks, while the other accounts will be suspended or closed.

They will also get a "concessionary unsecured credit of one month's income" that is to be used for daily needs.

ABS director Ong-Ang Ai Boon said: "The minute customers find they are having a bit of a challenge repaying... (they) should approach the bank. By the time you become a 'delinquent' borrower, you have less bargaining power."

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 scheme, 6,000 were approved, said Mrs Ong-Ang.

About 70 per cent of those were by people aged between 30 and 50, and 60 per cent had an annual pay of between $30,000 and $60,000.

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