May 20, 2008

inSingapore: No Credit to Banks

Posted in Musings tagged , , , , at 12:35 pm by myrlinn

I was reading ‘My Paper‘ (Singapore daily newspaper) today, and the headline on page 2? “Payment Holiday for Credit is not worth taking’ about the practice of banks waiving the required minimum payment during selected periods. Why is this bad? The penalty charge for not paying the minimum amount may have been waived, but you continue to be charged interest (up to 24% per annum) on the outstanding balance.

The article ties in nicely with what I had intended to blog about this week. I got this flyer for a Credit Line facility in my mailbox a few days ago, and immediately felt disgusted with the ploy:

Flyer from Singapore bank, May 2008

‘Here’s a great way to fight rising prices…’ may be a great way to grab attention. And I know banking industry in this tiny island is very competitive. BUT… capitalising on people’s very real worries over rising prices by advocating that they turn to credit? That’s just WRONG.

The graph showing the sharp rise in prices in April 2008 over the previous month is coupled with the promise that ‘You can get cash to tide over this period of rising prices on necessities’ [bolding is as on flyer] . This is just plain misleading in that it seems to be saying that the price inflation we’re experiencing is something temporary, when rising prices looks like a medium-term trend at least.

Also, people shouldn’t be using credit to pay for necessities like petrol and utilities, and food. Whoever does so is just inflating even further the prices they are paying for the things they really need.

Of course, the bank may argue that they’re actually advocating that people switch over their existing credit card balances to a credit line which charges lower interest rates on outstanding balances. But that still imparts the wrong attitude to the public.

You shouldn’t be thinking of switching their balances from credit card to a lower-interest credit line as a first option. Instead, if you have a credit card, you should be seriously thinking about how you can clear your credit card debt as soon as possible. Using credit lines may be part of an overall plan to start clearing debt. It should definitely not be a way for you to live the same lifestyle by using up more credit facilities.

In the past, we may have looked to banks as trusted custodians of our savings. Today, with banks turning more towards aggressively selling different types of products, it may be wise to remember… BUYER BEWARE.


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