At times, you may find yourself saddled with multiple loans, which you must repay during the month. This may make it challenging for you to meet all your payment deadlines.
This is when a debt consolidation loan may come in handy.
If you are wondering what is debt consolidation loan, it is a loan that consolidates all your unsecured loans into one single loan.
This is done with the aim of lowering your interest rates and monthly payments. In other words, a debt consolidation loan makes repaying all your loans an easier task.
This article discusses debt consolidation loans in detail, including their benefits and how you can qualify for one.
What Is Debt Consolidation Loan?
A debt consolidation loan consolidates your various loans into one single loan to be managed under one lender. Such a loan will consolidate debts from different financial institutions.
Credit cards, joint accounts, and renovation loans are among some of the credit facilities covered.
Debt consolidation loans can significantly lower the interest rates you are currently paying, thus reducing the monthly payments you make. This helps you save time and money.
The main point of a debt consolidation loan should be to enjoy a lower interest rate, and secondly to make it easier to repay all your debts with one single loan.
How It Works
When you have multiple debts with various lenders, it is easy to lose track of your payments and miss payment deadlines, which might result in more fees.
Debt consolidation aims to resolve all this. It consolidates your loans from all your debtors to form one loan, which you’ll pay to one creditor over a fixed period. This, in turn, lowers the interest you’ll pay on your loans.
Licensed money lenders offer debt consolidation loans. Some financial institutions offer debt consolidation plans (DCPs), which are different from debt consolidation loans as they are debt refinancing programmes.
What Will Be The Total Debt Consolidation Amount?
The debt consolidation amount will equal your outstanding balance, plus other fees and charges. In addition, a 5% allowance is imposed on your first debt consolidation loan.
The 5% charge can be used to pay for any extra fees or costs associated with the consolidation process.
However, if the debt consolidation plan amount approved is less than your outstanding balance, you’ll have to make up the difference with your own savings or by taking out another loan.
Pros And Cons Of A Debt Consolidation Loan
Pros
- Debt consolidation results in a lower interest rate than when you pay the loans separately.
- You only need to pay one loan per month, saving you lots of time and worry.
- The minimum monthly payments are manageable with an extended loan duration
Cons
- A debt consolidation loan comes with additional costs such as transfer fees, closing costs, origination fees and annual fees, in addition to the newly decided interest rate.
- If your credit score isn’t high enough to guarantee you a lower interest rate, then you may end up paying more during your new consolidated loan tenure.
- Your credit score will be impacted if you miss any loan payments on a debt consolidation loan.
- Paying late will incur additional fees such as late fees and late interest.
- Despite qualifying for lower interest rates on a debt consolidation loan, you may still end up paying more money over the life of the new loan as the loan tenure can be as long as seven years.
- Even with a debt consolidation loan, your debt woes won’t end if you don’t address and change your poor spending and budgeting habits.
What Documents Do I Need To Qualify For A Debt Consolidation Plan Or Loan?
Now that you know what is debt consolidation loan, here are the documents you need to qualify for such loans.
Debt Consolidation Loans
Singaporeans and permanent residents must:
- Be 21 to 65 years old
- Earn at least $20,000 annually
- Have their NRIC
Foreigners must present their:
- Employment pass
- Proof of residency
- Bank statements or payslips
Debt Consolidation Plans
- NRIC
- Your latest Credit Bureau Report (latest)
- Latest credit card statement
- Latest unsecured credit loan statements
- Settlement notice from your debt consolidation bank
Eligibility For Debt Consolidation Plans
To be eligible for a DCP, you must:
- Be 21 to 65 years old
- Be a Singaporean or permanent resident
- Earn between $20,000 to $120,000 yearly
- Have net personal assets that are worth less than $2 million.
- Have unsecured debts that exceed more than 12 times of your monthly income
Note that a debt consolidation plan cannot be used for:
- Business credit lines
- Business loans
- Car loans
- Education loans
- Housing loans
- Joint accounts
- Medical loans
- Renovation loans
Where To Get Debt Consolidation Loans
In Singapore, you can get debt consolidation loans from licensed money lenders.
Debt consolidation plans are offered by the following financial institutions:
- American Express International, Inc.
- Bank of China Limited Singapore
- CIMB Bank Berhad
- Citibank Singapore Limited
- DBS/POSB Bank Ltd
- Diners Club Singapore Pte Ltd
- HL Bank
- HSBC Bank (Singapore) Limited
- Industrial and Commercial Bank of China Limited
- Standard Chartered Bank (Singapore) Limited
- Maybank Singapore Limited
- Oversea-Chinese Banking Corporation Limited
- RHB Bank Berhad
- United Overseas Bank Limited
Other than the listed financial institutions, other institutions may be added or substituted at any time.
You don’t have to apply to all financial institutions – just apply to one. Compare the terms and conditions between different institutions before making your choice.
Decide If You Need A Debt Consolidation Loan
Now that you know what is debt consolidation loan, you can look for the right lender. At CreditMaster, we are committed to addressing your issues as far as debt consolidation plan loans are concerned.
Our experienced professional will help you organise your loans to consolidate debt, making your debts more manageable.
We will help you find a way to lower the interest rates charged on your loans and walk you through the debt consolidation process, ensuring you pay off your debts without struggling.
What’s more, we can offer a money lender repayment plan with affordable installments spread across a fixed period.
Contact us now or apply for a loan with us today.
Frequently Asked Questions
Can I Still Use My Existing Credit Facilities While Awaiting Debt Consolidation Plan Approval?
No. You’re not allowed to use your unsecured credit facilities after you submit your application for a debt consolidation Plan.
The financial institution might approve your debt consolidation plan, yet the amount awarded may be less than what you need to cater to all outstanding debt.
In this case, you are obliged to pay the remaining amount directly to the financial institution.
Also, you’re supposed to pay all extra charges as stipulated under the terms and conditions of the said debt consolidation plan.
Should I Continue Repaying The Outstanding Balances On My Existing Credit If I Have A Pending DCP Application?
Yes, you should continue paying your outstanding balances on your existing unsecured account while your debt consolidation plan application is pending.
When the debt consolidation plan loan is approved, you’ll need to only repay the monthly debt consolidation plan loan repayment amount to the financial institution.
However, suppose the 5% allowance fee is less than the expenses accrued between the time of application and the time the DCP loan is disbursed.
In that case, you’ll have to pay the shortfall directly to your financial institution.
