Personal loan, overdraft balances rise, especially among young adults

Credit card debt was down but personal debt rose in the second quarter of this year, with borrowing up sharply, especially among young people.

New figures show that the amount of debt taken on by borrowers in their 20s shot up 19 per cent in the second quarter compared with the first quarter, most likely in response to financial difficulties arising from the pandemic and its lockdowns.

Personal loan and overdraft balances for all age groups have risen, but people in their twenties have been taking on markedly higher levels of debt in the form of personal loans since the second quarter of last year.

This has been increasingly made up of secured personal loans even as unsecured personal loan balances fell.

Secured personal loans were up by 11.27 per cent in the second quarter, while unsecured personal loans fell by 6.49 per cent, said the Credit Bureau Singapore (CBS) yesterday.

The CBS Consumer Credit Index report combines unsecured and secured personal loans, overdrafts and credit card spending in reporting average consumption balances.

Borrowing limits have been capped in Singapore since 2015 to help keep unsecured debt in check.

Experts said unemployment and lower earnings could have driven young adults with fewer resources to try to borrow their way out of the economic crisis.

Professor Sumit Agarwal from the National University of Singapore Business School said that it does not make much difference whether a personal loan is secured or unsecured, although secured loans may seem to be of lower risk as they would have collateral pledged and their interest rates tend to be lower.

"It's still a loan and consumers would eventually have to pay (it) back," he said.

But he did note that borrowers are behaving rationally by taking out personal loans and overdrafts to maintain their lifestyles, given that interest rates are low.

Prof Agarwal does not feel that the debt figures are a cause for worry, unless the unemployment situation is prolonged.

OCBC Bank chief economist Selena Ling told The Straits Times last month that the impact from rising personal debt among younger people will depend on when things turn around and how quickly they find jobs allowing them to pay off their debts.

"If the (unemployment) duration is extended, then loan delinquency or default rates may rise."

The average personal loan and overdraft balances for borrowers from 21 to 29 years old shot up to $59,141 in the second quarter from $49,689 in the previous three months, and by about 82 per cent from the average of $32,425 in the first quarter of last year.

There were 164,779 unsecured borrowers in the credit card, overdraft and personal loan categories in the 21 to 29 age group as at July this year, down from 173,922 borrowers in July last year.

The number of unsecured loan holders across all age groups was 2,008,418 as at July, compared with 1,991,084 in the same month last year.

New credit applications for personal loans saw the highest increase of 10.4 per cent compared with a 6.55 per cent rise for overdrafts, a 0.93 per cent rise for mortgage loans and 0.49 per cent rise for credit cards.

CBS data showed that the personal loan delinquency rate for borrowers under 30 fell from 4.55 per cent in the first quarter to 4.28 per cent in the second quarter, while the overdraft delinquency rate rose from 4.35 per cent to 4.52 per cent.

This rate refers to the percentage of borrowers with payments that are 30 days or more overdue.