How Does A Debt Consolidation Loan Work – FAQs about Debt Consolidation Plans (DCPs) In Singapore

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How Does A Debt Consolidation Loan Work – FAQs about Debt Consolidation Plans (DCPs) In Singapore

July 27, 2022

When you are struggling with multiple debts, it can be challenging to keep track of all the various payments and interest rates, leading to a lot of stress and financial troubles. There are simply too many bill repayment dates and a single mistake could cause you a lot of money. Even utilizing mobile applications to keep track of deadlines will bring you more stress.

For such situations, a debt consolidation loan is a great way to simplify your debt payments and get them all under one roof. This blog post will answer common questions about how debt consolidation loans work in Singapore.

What is a Debt Consolidation Plan (DCP)?

Debt Consolidation Plan (DCP) is a Singapore government initiative that helps individuals with financial difficulties reorganize their debts. Under a DCP, all of an individual’s debts are consolidated into one monthly payment. Therefore, it makes it easier to manage one’s finances and can also lead to lower interest rates and fees.

In addition, the Singapore government provides specific protections for individuals entering a DCP, such as a moratorium on legal action and wage garnishment. As a result, a DCP can be an effective way for individuals to get their finances back on track.

The longest loan tenure for a debt consolidation plan for some companies is 10 years. A DCP can be recommended when you have a debt amount that is 12 times your monthly income.

What Are the Financial Institutions in Singapore that Offer Debt Consolidation Plans (DCPs)?

Many financial institutions in Singapore offer debt consolidation plans. They include:

  • Credit Thirty3
  • American Express International, Inc.
  • Bank of China Limited Singapore
  • CIMB Bank Berhad
  • Citibank Singapore Limited
  • DBS 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

Who is Eligible For DCP?

Currently, DCPs are only available for Singaporeans and Permanent Residents (PRs). As mentioned earlier, the debt consolidation plan is meant to help individuals with their debt issues.

The borrower must earn between $20,000 to $120,000 per annum and only hold net personal assets of under $2 million. He or she must also have a total interest containing unsecured debt on all credit cards and unsecured credit facilities with financial institutions in Singapore that is 12 times higher than your monthly income.

Each individual is allowed to have only one DCP at any time.

How Can I Apply For DCP?

The application process for a DCP is different for various financial institutions. Most of them will require you to fill out an online form and provide supporting documentation such as your income statement, latest payslip, or bank statements.

Once the lender approves your debt consolidation loan application, you will be given a repayment plan that you must adhere to. You can also apply online for a debt consolidation plan.

Do I Need to Apply With Multiple Financial Institutions?

No, you only need to apply with one financial institution. With one financial institution, you can rest assured that your money will be safe and secure no matter what happens in the world around us.

The best way to make sure this happens? Choose a bank with all sorts of benefits like low-interest rates for starters, or even better yet: multiple banks, so if something goes wrong, there’s still plenty more where they came from.

What Documents Do I Need to Apply For DCP?

The successful candidate will need to provide the documents below in the application. If you want to apply for the Development Charge Rebate (DCR) scheme in Singapore, you will need to submit the following documents:

  • A copy of your latest credit report.
  • A copy of your Singapore NRIC or other photo identification document.
  • A copy of your latest property tax bill or assessment notice.
  • Confirmation letter(s) evidencing unbilled principal balances, if any exist under Unbilled Debt Relief Program – UDRP).
  • A copy of income paperwork, including but not limited to the last four payslips from employers.
  • Copies of recent bank statements showing no outstanding debts such as unsecured lines of credit payments due within 60 days or more recently closed loans.

What Should I Do if I Have Other Transactions Not Found in My Statement?

If transactions are not found on your statement, it’s important to bring documentation such as receipts or invoices for the financial institution to accept. Do understand that in the case of a DCP, it is best to submit all your financial statements so that the problem can be thoroughly solved.

Is it Possible to Do a Partial Consolidation of My Loans?

A partial consolidation of your loans may be possible if:

  • You want to keep some of your loans with their current benefits, such as interest rate discounts or principal rebates. For example, you may want to maintain the benefit of paying on time each month or making extra payments.
  • You want to keep some of your loans because they have a low-interest rate, and you don’t want to lose that benefit by consolidating them.

If you’re unsure whether to consolidate all of your loans, speak to us for more information about partial consolidation and its benefits.

Can I Still Use My Unsecured Credit Facilities When My DCP is Approved?

Once your DCP plan has been approved, you will not be allowed to use your unsecured credit facilities. You will not be able to use your usual credit cards.

However, the DCP does come with at least one revolving monthly credit. The maximum amount of this credit facility is 1x of your monthly income. This is for your financial emergencies. and to help with your daily expenses. This credit facility cannot be cancelled.

You’re not required to use this credit facility if you don’t need to.

Do I Continue Making Regular Repayments While I am Waiting For the Approval of My DCP?

Yes, you have to make regular repayments while waiting for your DCP to be approved. You will still be liable for all your loan repayments until your financial institution begins the DCP.

You will only need to make one monthly repayment to your financial institution after your DCP has been approved. Your financial institution will help you with the debt from others.

 

How Will My Credit Score Be Affected With DCP?

It’s no secret that your credit score is essential. It can affect everything from your ability to get a loan to the interest rate you’re offered. So, what happens if your score takes a hit? There are a few ways that your credit score can be affected by debt consolidation.

First, consolidating all your debts into one payment will show up as a new loan on your credit report. It can lower your average account age, resulting in a slight decrease in your score.

Next, if you’re consolidating high-interest debt into a new loan with a lower interest rate, you may be tempted to use that extra money to raise more debt. It could lead to an increase in your debt-to-income ratio, which could also harm your score.

However, some potential positives are also regarding loan consolidation and your credit score. For example, you can free up extra cash each month by consolidating multiple debts into one monthly payment. It can assist you in making your payments on time and improve your payment history, which are positive factors in calculating your credit score. Additionally, you can consolidate debt which can help you reduce your overall debt.

What Kind of Loans Cannot be Consolidated Under the DCP?

Debt Consolidation Plan Singapore helps people with several debts to manage them better by consolidating all the debts into one loan with a single monthly payment.  Under this plan, some loans cannot be consolidated. They include:

  • Government Debts; Singapore government-related debts such as income tax, service, and conservancy charges cannot be consolidated under the DCP.
  • Renovation loans; are usually not eligible for consolidation because they don’t require collateral.
  • Joint accounts; can only be consolidated if both account holders agree.
  • Judgments & Voluntary Assessments; Court judgments or orders and voluntary assessments issued by Singapore’s Inland Revenue Authority are not allowed to be consolidated.
  • Medical or business loans; cannot be consolidated under the DCP because they are usually categorized as unsecured loans.
  • Maintenance & Child Support Debts; Maintenance payments due to your ex-spouse or children from a divorce settlement and child support arrears owed to the Family Justice Courts cannot be consolidated.
  • Education Loans; Tuition fee loans and study loans from Singapore’s Ministry of Education or any other government institution cannot be consolidated. However, student loans from commercial banks can be included in the DCP.
  • Property Loans; Housing loans and other types of property mortgage loans cannot be consolidated into the DCP but may be refinanced separately.

What Are the Benefits of Debt Consolidation?

Debt consolidation is often hailed as a one-stop solution for getting out of debt.

By consolidating your debts into one loan, you can gain the following benefits;

  • Save money on your monthly payments and get out of debt more quickly.
  • It can also simplify your financial life by giving you just one bill to pay each month.
  • It can enable you to get a lower interest rate on your loan
  • It can allow you to pay off your debt sooner
  • Improve your cash flow

What Are the Risks of Debt Consolidation?

There are some risks involved with debt consolidation; they include;

  • You may end up paying more interest if you extend the loan tenure.
  • You may miss out on promotional interest rates offered by your creditors.
  • You may be tempted to use your unsecured credit facilities for unnecessary spending.

Where Can You Apply For A Debt Consolidation Plan?

Debt consolidation can be a helpful tool for managing your debts. However, it is essential to understand how it works before you apply for a loan. You should also compare the different options and choose the one that best suits your needs.

If you need a DCP, you can apply for one with the local banks or find reasonable rates with us here.