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Balance-to-Income Ratio BTI: Its Impact on You
In an effort to help borrowers avoid accumulating excessive debt and improve ling practices of Financial Institutions FIs, the Monetary Authority of Singapore MAS has implemented a limit on unsecured credit that can be granted. This regulation, referred to as Balance-to-Income ratio, is calculated by dividing one's outstanding interest-bearing unsecured debt by their monthly income.
A lower BTI ratio indicates financial stability and responsible borrowing practices since it suggests the borrower effectively manages monthly obligations agnst their earnings. Conversely, a high BTI ratio may suggest that an individual has taken on too much debt relative to their monthly income, potentially indicating difficulty in paying off the debt payments given their income level.
FIs are required not to grant further unsecured credit to individuals whose BTI ratio exceeds the industry-wide borrowing limit for three consecutive months. The rule took effect starting June 1, 2015 with a BTI limit of 24 times monthly income. As of June 1, 2019, this limit has been adjusted to 12 times monthly income.
How Do I Calculate My BTI?
The formula for determining your Balance-to-Income ratio is strghtforward:
Total Unsecured Interest-Bearing Balances across all Financial Institutions
Divided by:
Monthly Income
If you're uncertn about your total unsecured interest-bearing balances, you can purchase a copy of your credit report from Credit Bureau Singapore. You'll find the information under Aggregated Outstanding Balances, as shown in the red box below:
Sample Report View: Insert screenshot or description of where to locate this information
Impact on Borrowers
If an individual's total interest-bearing outstanding balances across all credit cards and unsecured credit facilities with Singaporean FIs exceed the industry-wide borrowing limit for three consecutive months, their account will be susped. This means they:
Will not be able to charge new amounts to existing credit cards or use other unsecured credit facilities with any financial institutions;
Cannot obtn credit limit increases on existing credit cards or unsecured credit facilities from all financial institutions; and
Are ineligible for applying for new credit cards or unsecured credit facilities from all financial institutions.
If a borrower's unsecured outstanding balances with any financial institution are more than 60 days past due, they will similarly be unable to:
Charge new amounts on existing credit cards andor other unsecured credit facilities with that specific financial institution;
Obtn credit limit increases on existing credit card or unsecured credit facilities from all financial institutions; and
Apply for new credit cards or unsecured credit facilities from any financial institution. This measure prevent the further accumulation of debt for those struggling financially.
Exceptions
The BTI rule does not apply in the following scenarios:
Unsecured loans for needs-based purposes e.g., business, medical expenses, education;
Borrowers with annual income above $120,000; and
Borrowers with net personal assets exceeding $2 million.
Borrow Responsibly
Exceeding your debt limits can lead to financial strn as you sink deeper into debt. Before applying for additional loans, consider the impact on existing debts and assess your financial standing. Avoid borrowing solely to repay another debt, which could result in a cycle of multiple, larger debts that are increasingly challenging to manage.
Where Can I Get My Credit Report?
To check your credit score, obtn a copy of your credit report from Credit Bureau Singapore. For detled explanations on the components of your report, view this sample with explanatory notes here.
Like and follow Credit Bureau Singapore on Facebook and LinkedIn for additional tips on mntning a good credit reputation!
If you need help managing debt after atting one of our talks or workshops, you can request one-on-one credit counseling. Information about the counseling session and instructions to arrange an appointment will be covered during your session.
Contributed by: Credit Bureau Singapore
Date of Publication: October 28, 2022
This article is reproduced from: https://ccs.org.sg/articles/ccs-221028/
Please indicate when reprinting from: https://www.669t.com/loan_limit/Credit_BTI_Impact_and_Responsibility.html
Singapores Balance to Income Ratio Rule Calculating Your BTI Limit Managing Unsecured Credit Debt Impact of High BTI on Borrowers Exceptions to the BTI Regulation Responsible Credit Card Usage Guidelines