Will your personal loan rates be affected by the GST hike?

Understanding how changes in the Goods and Services Tax (GST) can affect financial products is crucial for borrowers in Singapore.

With the GST set to increase, many are curious about how this shift might impact personal loan interest rates. In this article, we’ll explore this relationship and what borrowers can expect from this increase.

Here at OMY Singapore, you will discover the following:

What Is GST?

Goods and Services Tax is a type of tax added to most things Singaporeans buy, as well as the services they use. It operates on a value-added tax (VAT) system, where taxes are collected at each stage of the production and distribution chain, and ultimately passed on to the consumer.

Whenever a person purchases something—whether it’s groceries, clothes, or getting a service like fixing their laptop—the seller usually includes GST in the total price. This tax serves as a vital source of revenue for the government, contributing to funding various public expenditures such as healthcare, education, infrastructure, and social assistance programs.

What People Need To Know About The 2024 GST Hike

In Budget 2022, the Minister for Finance announced that the GST rate will be raised in 2 phases. The first is from 7% to 8% on 1 January 2023, followed by 8% to 9% on 1 January 2024.

The additional revenue generated from the GST hike is meant to be used for supporting healthcare expenses and caring for the Lion City’s seniors.

To assist Singaporeans in managing the impact of this GST increase, the government has improved the Assurance Package significantly. Starting from $6.6 billion in Budget 2022, it increased to $9.6 billion in Budget 2023 and exceeded $10 billion by September 2023. These aim to alleviate the impact of inflation.

The Assurance Package intends to cushion the additional GST expenses for the majority of Singaporean households for at least five years. Meanwhile, lower-income households may receive coverage for additional GST expenses for approximately ten years.

For the price displays, businesses have to show prices that include the 9% GST starting from 1 January 2024. If they can’t change the prices right away, they might show two prices: one for before January 1, 2024 (at 8% GST) and another for after (at 9% GST).

Hotels and other F&B establishments that add a service charge to bills don’t have to show prices that include GST. However, they have to tell customers that their prices include both GST and service charges.

How Will the GST Increase Affect You?

The Goods and Services Tax (GST) isn’t just about what consumers pay for goods and services. It also significantly influences various areas of the economy, including personal loan interest rates in Singapore.

Inflationary effects

First, an increase in the GST often triggers inflationary pressures. Increased prices for goods and services contribute to a higher overall cost of living, therefore directly impacting how much people spend.

Role of the Monetary Authority of Singapore (MAS)

Changes in GST rates can sway the decisions of the Monetary Authority of Singapore (MAS) regarding economic stability. These decisions, including adjustments to interest rate policies, can affect the trajectory of personal loan interest rates in Singapore.

Impact on processing fees and prepayment charges

The impact of GST changes can extend beyond interest rates. Processing fees and prepayment charges associated with secured and unsecured personal loans might also be affected which can increase the overall cost of borrowing.

Influence on borrowing costs

Inflationary pressures, driven by higher GST, can also have a ripple effect on borrowing costs. As prices surge, the cost of borrowing money might follow suit.

For those seeking financial products, this could make way for elevated personal loan interest rates. That said, assessing market trends and their potential impact on loan costs becomes more important.

Impact on financial institutions

Financial institutions, including banks, evaluate their competitive positions in response to monetary policies. Adjustments in interest rates by the MAS directly affect these institutions’ borrowing costs, which influences their strategic decisions on personal loan interest rates.

What You Can Do To Prepare For The GST Hike

While you can’t control economic policies, we’ve gathered the steps you can take to prepare for the GST hike and its potential implications on personal loan interest rates.

Budget wisely

First, take the time to review your current expenses and identify areas where you can cut back or make adjustments. By being proactive in managing your finances, you can better prepare for any potential increase in the cost of living.

Assess your spending patterns

Identify areas where you can potentially cut back or find more cost-effective alternatives. When you are mindful of your expenses, you can make more informed choices that align with your financial goals.

For example, you may consider reducing unnecessary expenses like dining out frequently or purchasing luxury items. By reassessing your spending patterns, you can identify areas where you can save money and adjust accordingly to accommodate the upcoming GST hike.

Explore savings and investment opportunities

Consider exploring savings plans or investments that offer stable returns or hedge against inflation. These financial instruments can offset the impact of higher prices resulting from the GST hike.

Take advantage of financial assistance programs

As much as you can, stay informed about government assistance programs like the Assurance Package. As mentioned above, this is designed to help Singaporeans cope with increased expenses due to the GST hike. Understand the eligibility criteria and how these programs can support your financial situation.

Plan for future loans

If you’re considering taking out a loan, it might be wise to apply for it before the GST hike. But regardless of when you are taking out the loan, make sure to understand the terms and conditions thoroughly, including potential changes in processing fees or prepayment charges due to the GST increase.

A Word From OMY

Having questions about the impact of the GST hike on personal loan interest rates is natural, especially when it comes to preparing your finances for the future. The key is to stay informed and take proactive steps to mitigate any potential negative effects.

That said, it’s also crucial to remember that economic policies are complex and their impact on personal loan rates may not always be immediate.

Ready to take out a personal loan in Singapore? Get a tailored loan offer here.

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