Limits on Borrowing Costs for Secured and Unsecured Lending to Consumers

Mr Chua Kheng Wee Louis asked the Prime Minister (a) what are the restrictions and quantitative limits around maximum interest rates, fees, and total borrowing costs for various classes of secured and unsecured lending to consumers; and (b) whether there are any plans to review such limits.

MAS does not dictate interest rates and fees charged by financial institutions (FIs). These are commercial decisions that should be made by the FIs, as they bear the risks of lending. MAS has instead put in place safeguards and disclosure requirements, to enable consumers to make informed decisions and to encourage financial prudence.

For unsecured credit facilities to be extended to individuals, MAS sets a minimum annual income requirement of $20,000, and also limits the amount that each FI can lend, depending on the borrower's annual income. An individual's total unsecured borrowings across FIs are capped at his annual income. To prevent excessive debt accumulation, a borrower's access to unsecured credit facilities with his FI will be suspended if the debt is past due for 60 days or more.

For mortgages, MAS has put in place measures over the years that have enhanced households' resilience in servicing their loans, including through the current period of higher interest rates. These include the total debt servicing ratio (TDSR) framework and loan-to-value limits and loan tenure caps for mortgage borrowers.

MAS also expects all FIs to clearly disclose fees and interest charges for their credit products. For example, in the case of credit cards, FIs are required to provide the total amount, including principal, interest, fees and charges, and the projected time that the customer will take to fully pay off the entire outstanding balance if a borrower has not paid the prior month's bill in full. MAS also require FIs offering mortgages to provide a fact sheet to borrowers stating key loan features and explaining how a borrower's monthly mortgage instalments would vary under different interest rate scenarios.

This transparency helps consumers make informed decisions on whether and how much to borrow, and which product best suits their needs. We urge households to continue to exercise caution before taking up any new loans. Households should expect further interest rate increases over the next year at least, and be sure of their ability to service their loans before making long-term financial commitments. Borrowers facing difficulties repaying loans should also approach their lenders early to explore possible loan refinancing and repayment solutions.