SINGAPORE: A new repayment scheme that aims to help over-indebted customers repay unsecured loans from facilities like credit cards, personal loans and overdrafts will be launched next Monday (Jan 23).
A total of 14 financial institutions, all of which offer unsecured credit loans, will be participating in the Debt Consolidation Plan (DCP), the Association of Banks in Singapore (ABS) said in a news release. This comes as the industry-wide borrowing limit is set to be reduced from the current 24 times one's monthly income to 18 times by June 2017 and to 12 times by June 2019.
Under the new scheme, a customer can consolidate all his/her unsecured credit balances across the 14 banks with just one institution.
This means that the bank that administers the DCP will "buy over" the customer's outstanding balances, fees and interest charges from his existing accounts with other banks. Those accounts will then be suspended or closed.
The scheme will offer borrowers a convenient mode of payment for daily financial needs and includes an unsecured credit of one month’s income.
According to the ABS, the plan will help customers reduce their monthly debt repayment obligations.
“When it’s a revolving unsecured loan, the interest rate will be higher because a customer can pay down but they can use it up again,” said Ong-Ang Ai Boon, director of ABS. “But in this instance, this bank that buys over all the unsecured loans will now convert it into a monthly fixed instalment repayment plan. The risk will therefore be reduced and at the same, the monthly servicing cost will also be reduced for each customer.”
This new repayment scheme follows the Repayment Assistance Scheme (RAS) which expired in December 2015. The RAS only offered lower interest rates and an eight-year repayment period for amounts in excess of 12 times a borrower’s income, whereas the DCP will cover all of a borrower’s unsecured credit balances.
About 11,000 applications for the RAS were received, with 6,000 of them approved by the time the scheme closed.