Turf war that do not benefit the consumers

Categories: Singapore

With the introduction of James by GE Money sold through SingPost, there is currently a turf war between the banks and finance company on the loan sector. James is promoted as a non-collateral loan up to 4 times the personal income of at least S$2500 per month whereas all banks can only offer up to 2 times the personal income. Banks obviously cry foul because of the double-standards. What is more worrying to me is not which sector won in the end but to the uninitiated and potential borrower.

On the surface, such loans seem enticing. How often can one get an unsecured loan? And up to 4x the monthly income? This loosely translated is like having an exchange rate that gives you four times your monthly income and spending power! After removing the initial euphoria and looking critically, the borrower should realised the followings:

This is a LOAN and not like that of foreign exchange! A loan means it needs to be paid back. If you are already having limitations in your spending, after taking the loan, is there any realistic way of paying back the loan? The repayment will add up to the extra monthly expenditure which was not there before. Therefore you are actually spending money that you don't have and more! Imagine having borrowed up to 4 times you monthly income which will translate to having to earn up to 4 times just to pay back the loan. In foreign exchange, the foreign currency you spend is whatever money you have in hand - there is no need to pay back.

If you take into account the interest accrued which was reported at 14.9% per annum, that will add $149 to every $1000 dollars borrowed per year. This does not seem much till one realised that each month that will make an extra $100 of expenditure which should be paid. Although the report does not specify whether failure of the monthly repayment will entailed any interest, going by the current practice, this will most likely to be the case and the interest would normally be 2% per month or 24% per annum! With this type of interest, before long, you will realised that the debt will increase exponentially and loan repayment becomes more and more difficult if not impossible.

Therefore, to the consumer, don't rejoice at the chance to borrow more money. The money lenders and banks are not your friend. There are running a business which means they are out to make money. And the way to do it is to earn interests. The longer you take to pay back the loan the better because the more they will earn. To the consumer however, the longer you take to pay means the more debt you have to pay. So whoever win this battle, the consumers will stand to lose.

So before you run to SingPost take the loan, just remember this: Banks and money-lending company are just legalised loan sharks! If you remember this, maybe you will be spared the agony of paying your debts later on.