If you plan to apply for a personal loan from a licensed moneylender in Singapore by June 2019, you may find it more difficult to do so with the Monetary Authority of Singapore’s (MAS) stricter rules for borrowers.

The cost of an unsecured loan in the country depends on a person’s annual income, among other factors. However, the MAS’ new restrictions seek to cap the loanable amount for individuals at 12 times their monthly income by June 1. Aside from personal loans, the government agency only intends to apply the updated rules for credit cards.

Preventing Too Much Indebtedness

MAS decided to implement the rules to prevent people from having too much debt. These restrictions affect those with outstanding unsecured loans from all financial institutions, which are worth 12 times more than their monthly income over the last three months before their application.

If you exceed the industry-wide cap on personal debt, you may not be able to use your credit cards for transactions, which may persist until you pay off some of your outstanding balances. Even if you do not plan to use your credit cards in the meantime, you also cannot apply for an increase in your credit limit and apply for new cards. Applicants for business, education and medical loans will be generally exempted from the restrictions.

Estimating Interest Rates

Interest rate computation serves as one way to determine the total cost of paying off a personal loan. The effective interest rate for a $10,000 loan usually ranges between 11% and 14%, and most banks require a minimum an annual income of $30,000 to be eligible. Some options cater to people with less than that amount or even below $20,000.

rising interest rate concept

Another way to estimate interest rates involves the annual flat rate. This simply means that lenders will add a minimum percentage of the principal amount, which would be payable for every year of your chosen tenure. For instance, a 7% annual flat rate on a $10,000 loan with a two-year tenure means that the borrower should have an interest of $700 for every year.

Foreign Borrowers

Banks and lenders in Singapore are not particularly keen on approving applications of foreign borrowers. Most financial institutions would require them to have a banking relationship for several years and maintain good credit standing. Even if you become approved, you could only be eligible for an amount worth not more than four times your monthly income.

Lenders may also declare an expat borrower to be bankrupt if you fail to pay off your debt, even if it is just $10,000. Do not think about leaving the country to escape unpaid loans, as banks are known to chase after delinquent borrowers despite not being in the country anymore.

While the new restrictions will not take effect before the end of the second half, it may be a good idea to start reviewing existing loan options as early as now. Choose a moneylender in Singapore that offers multiple loan products for different purposes.