Paying in advance downgrades credit rating

I RECENTLY had a chat with a bank officer about my housing loan which I have been serving for around 10 years out of the tenure of 35 years.

I found out about the EPF withdrawal scheme whereby contributors could withdraw an allowable amount from their account to pay their housing loan and thought of using this to make a lump sum payment to reduce my outstanding loan and monthly instalments.

When I discussed this with the bank officer, he said that reducing the monthly instalments would involve a loan restructuring process that would negatively affect my credit rating in the Central Credit Reference Information System (CCRIS).

When I asked why, the officer said this was due to the fact that only borrowers with reduced ability to serve their loan would opt to restructure their loans. I found this explanation quite absurd because in this case, the restructuring is due to me paying in advance.

The credit rating system should be able to differentiate between distressed borrowers and those who pay in advance, unless the system is purposely designed to discourage loan prepayment in order to protect the profitability of the lenders.

The household debt over GDP as at September was 83.2%, which is among the highest in Asia.

There are other statistics such as the number of bankruptcies to show that our household debt burden is increasing. As such, the government should make it easier for borrowers to pay their loans in advance, including removing any penalties or fees related to loan prepayment, and improving rather than downgrading the credit rating of loan pre-payers.