There are primarily two kinds of instant cash loans: secured and unsecured. As their names imply, an unsecured loan requires no type of collateral to get approved, while a secure loan demands collateral. If you are specifically looking to obtain an unsecured loan, it is recommended that you are aware of what your Balance-to-Income (BTI) ratio is.
The BTI ratio compares the amount of credit being used to your overall revolving credit available. The Monetary Authority of Singapore has imposed a limit on the amount of unsecured debt that may be granted to borrowers, with the purpose of keeping borrowers from accumulating excessive debt by improving the lending practices of financial institutions. Read on to find out more about the BTI ratio and how it can impact you as a borrower.
What is the Balance-to-Income (BTI) ratio?
As mentioned earlier, the BTI is a comparison of the amount of credit you are utilising to your total available revolving credit. In essence, it informs potential money lenders of how much debt you currently have in comparison to your available credit. It is calculated by having your outstanding interest-bearing unsecured loan divided by monthly income.
If you have a lower BTI ratio, it means that your financial posture shows a good balance between income and debt. It demonstrates that you are likely to manage your monthly obligations effectively. On the contrary, a high BTI ratio usually indicates that you have excessive debt for the amount of income you earn each month. It suggests that you might be having a hard time paying off your debts relative to your income.
How to calculate BTI?
You can calculate your BTI ratio by using this simple formula:
Overall unsecured interest-bearing balances across every financial institution / Monthly income = BTI
If you are not sure of your overall unsecured interest-bearing balances, you may obtain (for a fee) a copy of your credit report from Singapore’s Credit Bureau. You may find the necessary information under ‘Aggregated Outstanding Balances’.
How does BTI impact you?
As explained earlier, a high BTI ratio is indicative that you could be struggling to pay off your debts in relation to your income. Therefore, if your BTI ratio surpasses the industry’s borrowing limit for three continuous months, financial institutions may be reluctant to extend additional unsecured debt to you. This borrowing limit was enforced on June 1, 2015, and as of June 1, 2019, the prevailing BTI limit is 12 times one’s monthly income.
In addition to facing difficulty in securing additional unsecured debt, your account could also face suspension if your total interest-bearing outstanding balances on unsecured credit and credit cards surpass the industry’s borrowing limit for three continuous months. When that occurs, you will no longer have the ability to do the following:
- Use other unsecured credits with every financial institution and/or charge additional amounts to your current credit cards.
- Acquire credit limit increases on your current credit cards and/or other unsecured credits with every financial institution.
- Apply for new credit cards or other unsecured credits for every financial institution.
Moreover, should your unsecured outstanding debts with a money lender or financial institution remain unpaid for more than 60 days past the due date, you will lose the privilege to:
- Charge additional amounts to your current credit cards and other unsecured credits with the same money lender or financial institution.
- Acquire credit limit increases on your current credit cards and other unsecured credits with every financial institution.
- Acquire new credit cards or other unsecured credits from any money lender or financial institution.
Conclusion
Understanding your BTI ratio is important, especially if you are looking to apply for unsecured cash loans in Singapore. It would also be beneficial to keep in mind that borrowing money beyond your means could leave you financially struggling as you go further into debt. For this reason, always be sure to understand your financial posture and consider all your current debts before applying for additional loans.
Whenever you are in need of cash loans with fast loan approval in Singapore, Orange Credit is here to assist you! We are an established money lender offering a variety of reliable loans for different needs, including debt consolidation loans, business loans, personal loans, and payday loans. Please feel free to reach out to us anytime to find out more about how we can help you with your financial concerns.
