Singaporeans are big shoppers. Recent research revealed that 73% of them own at least one credit card and that 37% of them use it several times a week. Food, clothing, electronic devices, and shoes were the top products Singaporeans purchase using their credit cards.
Despite their extensive credit card ownership and use, though, Singaporeans are disciplined in repaying. Eighty-eight percent of them settle their debts on time, 9% repay partially, and the remaining 3% are the only ones who pay off the minimum amount.
Considering that, lenders must have a lot of confidence in Singaporean borrowers. And that might’ve been proven by the growing popularity of “Buy Now, Pay Later” plans in the market. The millennials and Gen Zers of Singapore are the target of these plans, and they’re falling for it. The Buy Now, Pay Later (BNPL) plan, after all, covers most of their needs, from skincare products, coffee machines, to home office equipment. They can make the purchase anytime and pay for them in instalments.
The BNPL service is attractive because it doesn’t require a credit card and has zero interest. As such, 1.1 million Singaporeans have used the service. But industry watchers issued a warning: BNPL could just offer a false sense of affordability, creating bad debt.
Debts and Singaporeans
Going into debt scares many people, but not Singaporeans, it seems. A survey by Finder in October 2020 found that one in three Singaporeans took out a personal loan in the past 12 months. That’s around 928,000 individuals.
Ten to 13% of the survey’s respondents said that they needed the loans to cover their basic needs. Eleven percent said that they needed it to help their family and loves ones. One in ten locals used the loan to pay off their other debts such as credit cards or mortgages.
The idea of using debt to pay off another debt may sound absurd, but it’s actually considered a good reason to get a personal loan. In Singapore, loans with low interest are offered to people who need cash but don’t have an attractive credit history to show, or any credit history at all. Lenders of low-interest loans assess borrowers based on their current income alone. So even if they have one loan on top of another, they can still fit the risk profile as long as their income is proven sufficient to repay the debt.
The BNPL Effect on Singaporeans
Going back to the BNPL craze, it isn’t showing signs of slowing down, despite the financial impact of COVID-19. A report by Worldplay from FIS even stated that BNPL is forecast to gain global market share between now and 2023. Across Asia-Pacific, BNPL transactions may grow more than double in 2023.
Singaporeans are hooked to this service because, unlike credit cards, BNPL plans don’t scrutinize their credit histories and ask them for proof of income. Simply put, they take a “lighter touch approach” in evaluating creditworthiness. Of course, from a customer’s perspective, that’s an irresistible opportunity to “shop ’til they drop.” What’s more, anyone above the age of 18 can create a BNPL account, so older Gen-Zs and younger millennials are particularly enticed by it.
Sure enough, in Singapore, the key customer segment of BNPL is composed of people between 18 and 35 years old. Their average order value is around SGD200 to SGD300. Maximum transaction limits vary. Some BNPL providers might place a limit of SGD1,000 on debit card purchases and SGD4,000 on credit card purchases.
Because of these attractive offers, many Singaporeans who might not qualify for loans use the BNPL service to be able to shop more. However, recent data from Finder found that 27% of Singaporeans became financially worse off after using the service. They said that impulse buying was the number 1 mistake they made because of BNPL. Overstretching their budgets was the second-most-common mistake, rendering Singaporeans struggling to satisfy their other expenses.
Good Reasons to Go into Debt
Fortunately, the amount of Singaporeans drowning in debt isn’t alarming. In fact, most of them have pretty valid reasons for taking out a loan. Finder’s survey found that Singaporeans are more likely to get a loan if they’ve recently been engaged, had a child, moved homes, or tied the knot.
According to James Martin, senior writer and money expert at Finder.com, the pandemic put many people in difficult situations, making loans seem like the only option to get them through. And indeed, in some cases, getting a personal loan is the best way to escape a major financial burden.
But on top of everything else, Singaporeans must remember that there are alternatives to personal loans, like credit cards or payment plans. BNPL, on the other hand, isn’t always a wise service to use, especially for non-essential items. It could be a trap for consumers who are already struggling with their savings.