WHILE banks have started to tighten lending with the onslaught of the global financial crisis, the unsecured consumer-banking sector remains a lucrative segment which no bank wants to lose.

I have been receiving many fliers and numerous calls from local and foreign banks to take on balance transfers and loans.

No collateral is required, and banks have sweetened the offer with very low interest rates and processing fees, if any at all.

Compared to default credit- card interest rates of up to 24 per cent per annum, balance transfers and the loans offered to me have an interest rate of between 2.8 per cent and 3.8 per cent. A one-time processing fee of 1.5 per cent to 3 per cent applies, depending on the drawdown amount and tenor, which is usually not more than six months. In addition, no early-repayment penalties apply.

It sounds like a great deal for credit-card holders who cannot make payment on their credit- card bills beyond the minimum payment amount.

For banks, extending such schemes to customers is a way to retain them while ensuring outstanding credit-card bill payments do not become "non-performing".

It is also relatively low-risk, since the maximum loan or balance- transfer amount is capped at two months of a customer's monthly income.

Amid falling inter-bank rates of under 1 per cent, this sector still offers a respectable margin of 2 per cent and above.

The catch, however, is the one-time processing fee. Even at 1.5 per cent with a three-month tenor, the effective borrowing cost can increase by a hefty 6 per cent on an annualised basis.

Consumers should be careful about their spending, and use such low-interest credit facilities carefully.

Instead of plunging further into debt, consumers should exercise prudence in managing their financial affairs and not be unduly tempted to stretch their means before the economy turns around.

Mr Ee Teck Siew

For more my paper stories click here.