Loan consolidation sounds like a great way to gain control over your debts. After all, it reduces the number of loans to pay for and due dates to worry about.
But there’s more to understand than just combining all your debts into a single loan. Moreover, it is not fit for anyone and may cause more damage without proper knowledge and planning.
Interest rates are a significant consideration in a loan consolidation plan. Your credit rating may also form part of qualifying and getting the best rates. Read this article to help you with the decision making and find the best debt consolidation plan for you.
What is a Debt Consolidation Plan?
Is your debt eating up a significant portion of your income? Then, it may be time for a debt consolidation plan! A debt consolidation plan combines all your existing unsecured loans, such as credit card debt, personal loans, and unsecured credit lines.
Who Can Get a Debt Consolidation Plan?
A debt consolidation plan aims to bring your loans together into a new loan with lower interest rates and a more manageable repayment term. But, you will only qualify if your outstanding loan balance is equal to or greater than your annual income, and you will have to show proof to the participating financial institution for this.
To be eligible, you must:
- Be a Singapore Citizen or Permanent Resident
- Earn between S$30,000 to S$120,000 per year
- Have net personal assets less than S$2M
There are currently fourteen financial institutions in Singapore where you can get debt consolidation plans.
Debt Consolidation Plans from Major Banks in Singapore
Debt consolidation makes paying your debt simpler by rolling your debt into one payment. Still, it only makes sense when the interest rate is lower than your combined loans. We’ve listed plans tenured between one to ten years and have fair to excellent interest rates.
Here are some of the best loan consolidation plans worth checking out:
1. HSBC Debt Consolidation Plan – Best for Long-term Plans
Many Singaporeans have multiple debts of significant amounts that may be hard to pay in a short period. With HSBC’s Debt Consolidation plan, you can consolidate your loans and pay up to a maximum period of ten years. This plan could be ideal for those with multiple high-interest loans or credit card bills.
Key Features
- Lowest interest rates: 3.4% p.a. (EIR of 6.5%)
- No application fee for online applications
- Charges a late fee of S$75, which is the lowest among DCP institutions
Eligibility
- Singapore Citizens and Permanent Residents with income between S$30,000 and S$120,000
- Borrowers should have a balance-to-income ratio of at least twelve times their monthly income
2. Standard Chartered Debt Consolidation Plan – Best for Refinancing
Standard Chartered’s current DCP offer is ideal for those seeking to refinance their existing debt consolidation loan. Its interest rate is still one of the lowest among DCPs. While it has a one-time processing fee of S$199, this cost is negligible compared to the benefit of controlling your debt and spreading your payments between three to ten years.
Key Features
- Competitive interest rates: 3.48% p.a. (EIR of 6.33%)
- Comes with free Platinum Mastercard with an appropriate limit
- Cashback of S$200 when you apply online
Eligibility
- Singapore Citizens and Permanent Residents between ages 21 to 65
- With income between S$30,000 and S$120,000
- Have an outstanding unsecured balance of more than 12 times their monthly income
3. CIMB Debt Consolidation Plan – Best Backup Option
CIMB’s interest rate is the lowest, as advertised at 2.77%, making it a great backup option. But the 1% processing fee and the shorter duration of five years make it a less appealing option compared to other DCPs. Note that the S$2.77% interest rate may depend on one’s credit rating and is not guaranteed for all borrowers.
Key Features
- Competitive interest rates: as low as 2.77% p.a. (EIR of 7%)
- Full consolidation across banks
- Fixed installment plan up to five years
Eligibility
- Singapore Citizens and Permanent Residents with income higher than S$30,000.
- Have an outstanding unsecured balance of more than 12 times their monthly income
4. Maybank Debt Consolidation Plan – Best for New Plans
Maybank Debt Consolidation Plan is another one among the lowest interest rates in Singapore. It has a long repayment term of up to 10 years. Also, it currently has the best promotions for the new DCP loan. If you apply for a new plan, you’ll get a 5% cashback upon loan approval.
Key Features
- Promotional interest rates as low as 3.88% p.a. (EIR 6.92%)
- Cashback of up to S$1,500 for new DCP customers
Eligibility
- Singapore Citizens and Permanent Residents at least 21 years old with income between S$30,000 to S$120,000
- Have an outstanding unsecured balance of more than 12 times their monthly income
5. DBS/POSB Debt Consolidation Plan – Best for Cost-Saving Options
DBS/POSB’s current debt consolidation plan offering is a limited-time offer of a 3.58% interest rate and an EIR of 6.56%. Your approved DCP loan will also include a DBS Visa Platinum Card with a credit limit of one month of your income to help manage daily essentials. You’ll also get a 5% cashback if you avail of the minimum six-years tenure.
Key Features
- No annual fee
- Pay your DCP up to 72 months installment
- Lower processing fee of S$99
Eligibility
- Singapore Citizens and Permanent Residents aged 21 to 65 years old with income between S$30,000 to S$120,000
- Have an outstanding unsecured balance of more than 12 times their monthly income
6. Citibank Debt Consolidation Plan – Best for Convenience
With Citi’s Debt Consolidation Plan, you can get a chance to break free from the hassles of having multiple loans with convenience. Consolidate your debt into one loan with no processing fee and conveniently repay between three to seven years. Your loan proceeds will be paid directly to your creditors.
Key Features
- Interest Rate: 3.99% p.a. (EIR 7.5%)
- Complimentary insurance up to S$160,000
- Like DBS/POSB and Standard Chartered, you’ll also get a credit card with a capped credit limit of your one-month income.
Eligibility
- Singapore Citizens and Permanent Residents aged years old and above with income between S$30,000 to S$120,000 or a minimum of S$48,000 for non-Citibank customers
- Have an outstanding unsecured balance of more than 12 times their monthly income
In Summary:
|
DCP Provider |
Loan Tenure | Interest Rate (p.a.) |
EIR |
|
HSBC |
1 to 10 years | 3.4% | 6.5% |
|
Standard Chartered |
3 to 10 years | 3.48% | 6.33% |
|
CIMP |
1 to 5 years | As low as 2.77% | 7% |
| Maybank | 1 to 10 years | 3.88% |
6.92% |
| DBS/POSB | 1 to 8 years | 3.58% |
6.56% |
| Citibank | 3 to 7 years | 3.99 |
7.5% |
Why is a Debt Consolidation Plan Useful?
Unlike personal loan, Debt consolidation plans allow you to have a more manageable payment plan. Aside from this, here are a few more ways to find a DCP useful:
1. Managing credit card debts
Interest rates of credit cards may charge up to as high as 27%. And before you know it, your credit card balance has spiraled into a considerable amount. With a DCP, you can pay your credit card balances and start repaying your DCP loan at lower or more competitive interest rates and a more manageable period.
Here’s a sample scenario:
|
Unsecured Loans |
Outstanding Balance | Interest Rate (p.a.) |
Minimum Monthly Repayment |
|
Credit Card 1 |
S$ 10,000 | 25% | S$400 |
|
Credit Card 2 |
S$ 15,000 | 27% | S$500 |
|
Credit Card 3 |
S$ 5,000 | 26% |
S$250 |
| Credit Card 4 | S$ 8,000 | 25% |
S$280 |
| Total Outstanding Debt | S$38,000 |
S$1,430 |
If you want to clear your existing debts, get a DCP loan from a participating DCP finance institution at a lower interest rate.
Using HSBC’s debt consolidation plan rates:
|
Outstanding Balance |
Debt Consolidation Plan Loan Amount (including 5% allowance) |
Minimum Monthly Repayment (@ 8-year term) |
|
S$ 38,000 |
S$40,000 |
S$530 |
Looking at the tables above, a DCP significantly reduces the cost of interest. The monthly payment will also be reduced significantly and eliminates the hassles of paying several creditors.
Note that these figures are for illustrative purposes only and may vary depending on the borrower’s situation and the current bank rates.
2. Refinancing another DCP
You may have previously availed of a DCP, but then you need to adjust your budget and get one with a longer tenure to afford the monthly repayments. Some financial institutions allow this option and may give you lower interest rates for refinancing with the same financial institutions.
What are Other Options if You Don’t Qualify for a Debt Consolidation Loan?
Debt consolidation plans work very similarly to personal loans. If you don’t qualify for a DCP from a bank due to creditworthiness, not meeting the minimum balance-to-income, or being a foreigner, you can still apply for other types of financing.
Here’s how:
1. Apply for a personal loan.
Personal loans are available from many financial institutions, from banks to credit unions. Like any financial product, choose wisely by shopping around and comparing options to get the best rates.
2. Use the loan to pay off your debts.
If you get approved for a personal loan, commit to paying all your existing loans. With a DCP, all your existing unsecured credit facilities will be closed. But with a personal loan, you will be in charge of settling all your payables. Don’t spend it on unnecessary purchases and avoid adding more to your current debts.
3. Stay financially disciplined.
If you can, avoid high-interest debts such as credit cards and high-interest-rate loans for non-essential purchases. Stick to healthy financial habits to avoid getting into a deeper debt problem.
What If You Can’t Repay Your Debt Consolidation Plan?
There will be many significant financial and legal consequences when you fail to pay your debt consolidation plan. First, interest and penalties will accrue on top of your outstanding balances. If you don’t pay for a few months, your loan will be considered defaulted.
Defaulting includes:
- Failure to make a loan repayment on time and continuously
- Not complying with an undertaking and other obligations in a loan agreement
- Insolvency
What Happens in the Event of a Default in your DCP?
If a default happens, the financial institution can terminate the agreement and demand full repayment of the loan. Consequences of this will include:
- Snowballing of interests
- Lowering of credit scores
- The financial institution will endorse your case to a third-party collection agent
- Being sued to court by the financial institution
Other Important Things to Know About Debt Consolidation Plan
1. What are those that can not be consolidated under a debt consolidation plan?
Exempted unsecured loans include:
- Education loan
- Renovation loan
- Medical loans
- Business loans
- Joint accounts.
It will also not cover secured loans such as car or housing loans.
2. How much can you borrow from a debt consolidation plan?
For first-time borrowers, you will get an amount equal to the total outstanding debts you owe plus an additional 5% allowance. There are no additional 5% allowances on your succeeding DCP.
3. Will a debt consolidation plan affect my credit score?
Yes. It can positively affect your credit score if you pay your dues diligently and on time. On the other hand, your credit score will be negatively affected if you miss your payment or default on your loan.
As your Credit Bureau record will be updated, your DCP loan will also stay on your Credit Bureau report for three years after a DCP closure.
4. Will the funds be deposited into your account?
No. The funds can not be deposited to your current or savings account and will be directly paid to your creditors. Your accounts with those creditors will also be closed.
Closing
While it’s nearly impossible to go through life without having debt or owing money, managing debt should be dealt with with the highest responsibility. Don’t let debt spiral out of control by finding the right DCP financial institution. It would also be wise to get input from a financial adviser before making a final decision.
Key Takeaways
- Debt consolidation loans help you merge payments into one to lower your interest rates and monthly payments.
- If you are not qualified for a debt consolidation loan, you may opt for a personal loan.
- Make sure to compare options and diligently commit to eliminating your debt.
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