"Good" Debt Versus "Bad" Debt

[dydx]

I suppose the bottom-line has to be: Gearing or debt has to be used wisely, and conservatively. If it is used in business or investment, the ultimate risk and test is that if the underlying business or investment tanks, the borrower is still obliged to settle/repay the amount borrowed, lest he risks being bankrupted/liquidated.

[Contrarian]

This time round, i heard from a friend, can borrow 2% on personal credit for 1 year. No extra fees...

Sounds like a look debt to use when the equity markets are in severe stress

[Musicwhiz]

This time round, i heard from a friend, can borrow 2% on personal credit for 1 year. No extra fees...

Sounds like a look debt to use when the equity markets are in severe stress

Is it a pledged facility or did he put up any collateral? Sounds too good to be true - if it's an unsecured loan that it.

[Temperament]

i think HSBC or OCBC offer 1.88% for 6 months no collateral needed. As banking is concern they offer you because they know you don't really need it. We have experienced many times already.

[d.o.g.]

can borrow 2% on personal credit for 1 year

By law, unsecured credit in Singapore is limited to 4x the monthly salary. Anyone who has been saving and investing for a meaningful period of time should have assets that far exceed 4x their monthly salary, which means the money they can borrow through this route won't really make a difference.

For those who are very early in their career and have no savings, 4x their monthly salary would be large in relation to their net worth and could help build wealth quickly. But if they are early in their career they probably also don't have much investment experience, which means they should limit their leverage.

So either the unsecured credit amount is too small to make a difference, or the investor is too inexperienced and the leverage is dangerous.

Just my $0.02.

[greypiggi]

Agree with many posters here. I use leverage given via the pb. Usd is 0.9% per annum rolling monthly. Sgd is 1.3%. Debt is secured against the investment grade bonds I hold. My exp is that pb are willing to loan u up to 100% of assets with them. meaning if u have 1m , they will give u a line that is 1m. That to me is super aggressive and I am willing to only leverage up to 50%.

As for company loans, just to share as a business guy, it is always with personal guarantee or collateral. The only guys except are listco. That is a reason why some people list in first place!

[Jared Seah]

Everything is relative and has to be taken into context.

Insightful discussions!

A person has networth $10,000 but has a debt of $100,000 (or 10 to 1 leverage common in futures or forex) is living on a knife's edge. Win big and lose big!

B person has networth of $1 million but has debt of $100,000. Same dollar amount as A but not the same amount of risk

Another dimension is our lifecycle. Youths can take more risks as capital risked is small and have lots of time to recover. But if seniors nearing retirement at 65, then the question is what is the difference between 1 million and 2 million? Is it worth the risk to double down using leverage

But at the end of the day, the true determinant is our risk profile. That's why few will dare to be entrepreneurs. The risk of failure is just too great

[Contrarian]

> By law, unsecured credit in Singapore is limited to 4x the monthly salary. Anyone who has
> been saving and investing for a meaningful period of time should have assets that far exceed
> 4x their monthly salary, which means the money they can borrow through this route won't
> really make a difference.

There are some banks which reduce a person's credit card limit to offer the loan. And the limits can be VERY generous.

Say you borrow $50K, the interest for 1 year is $1K. For a 25% return in 1 year, assuming entry in a depressed capital market, the return is $12.5K / $1K. That's a return of 1250%...

I have seen some1 finished investing his reserve and proceed to borrow. He had a wife on stable income, so this loan is buffered by his wife's savings.

[yeokiwi]

yeah, thought of that too but I am afraid I might miss out on a few.

have dug deeper using google and found a complete list!

for those interested, just go to www.shareinvestor.com > Click on "Prices" > and select category "China"

next, is to hope that bloomberg does offer a historical dividend payment record

anw, thanks for your advice!

> By law, unsecured credit in Singapore is limited to 4x the monthly salary. Anyone who has
> been saving and investing for a meaningful period of time should have assets that far exceed
> 4x their monthly salary, which means the money they can borrow through this route won't
> really make a difference.

There are some banks which reduce a person's credit card limit to offer the loan. And the limits can be VERY generous.

Say you borrow $50K, the interest for 1 year is $1K. For a 25% return in 1 year, assuming entry in a depressed capital market, the return is $12.5K / $1K. That's a return of 1250%...

I have seen some1 finished investing his reserve and proceed to borrow. He had a wife on stable income, so this loan is buffered by his wife's savings.

The next question will be whether the loan can be rolled over at the same rate after 1 year. Sometimes, depressed market can last for more than a year.

[d.o.g.]

There are some banks which reduce a person's credit card limit to offer the loan. And the limits can be VERY generous.

Say you borrow $50K, the interest for 1 year is $1K. For a 25% return in 1 year, assuming entry in a depressed capital market, the return is $12.5K / $1K. That's a return of 1250%...

I have seen some1 finished investing his reserve and proceed to borrow. He had a wife on stable income, so this loan is buffered by his wife's savings.

My point is, total unsecured credit per lender cannot exceed 4x the monthly income. That includes both credit cards and personal lines of credit. It is the law.

For someone to borrow $50k on an unsecured basis, his monthly income must be at least $12.5k. Or, he has multiple lines of credit, say he earns $2.5k but goes to 5 lenders, borrowing $10k from each.

Note that for credit cards, there is no credit limit if the cardholder earns at least $120k per year or has at least $2m in net assets. But you can't buy stocks or a property with a credit card, at least not yet.