Which Is Better – Debt Consolidation Or Personal Loan?
March 31, 2023
Due to the high cost of living and the rising inflation in Singapore, you may have borrowed several loans. As a result, you may wonder whether you get a debt consolidation or personal loan to ease the repayment burden.
Even though you can use any of the two loans to consolidate your debts, they have pros and cons. Therefore, weighing which is better debt consolidation loan or personal loan, is a good idea.
Read through this article to understand the difference between debt consolidation and a personal loan, their pros and cons, what to consider when applying, and where to get a loan.
What Is A Debt Consolidation Loan?
A debt consolidation loan is a loan that allows you to combine all your existing debts into a single loan. This means instead of paying several loans per month, you will have a single loan to settle.
If you have multiple loans with high interest rates, you can amass them with a loan to consolidate debt under a lower interest rate. This makes repayment manageable, and you keep track of your monthly installments.
Debt Consolidation Loan Vs Personal Loan
As you think about which is better debt consolidation or personal loan, understanding the difference between the two loans can help.
Here is how they differ:
|Debt Consolidation Loan||Personal Loan|
|It is meant to help you consolidate your debt specifically||You can use a personal loan for various purposes, including consolidating your debts|
|Comes with a lower interest rate (6% to 14%)||Have a higher interest rate (11% to 14%)|
|You can borrow up to 12x your monthly income||You can only borrow four to eight times your monthly income|
Pros And Cons Of Debt Consolidation Loan Vs Personal Loan
Whether you decide to go with debt consolidation loans in Singapore or personal loans, both have their share of benefits and drawbacks.
Let’s have a look at them:
Benefits Of A Debt Consolidation Loan
Simplifies Loan Repayment
When you have multiple loans from several lenders, you will likely lose track of the monthly repayment. This results in late payment, which attracts penalties. However, with debt consolidation loans, you can combine your loans into one, allowing you to manage the cost. You will also find it easy to remember the due dates for paying your loan.
Lower Interest Rate
Loans with high interest rates can make you spend thousands of dollars to cover them. However, you can combine them into one loan with a lower interest rate. As a result, you can save some money depending on which loan package you find.
Flexible Repayment Plan
Sometimes, a loan can be a burden due to its repayment plan. You can change this by finding loans for consolidating your debt with a lower monthly repayment amount and longer loan terms. This will make the repayment schedule more flexible.
Build Your Credit Score
When you get a debt consolidation loan, your credit score is likely to improve after some time. This is because you can keep up with the monthly installments without missing them. And with a good credit score, you can secure a loan from banks or other financial institutions.
It Allows You To Repay Your Loan Faster
When you get a loan with a lower interest rate, you can pay it off faster than when the interest is high. This fastens the repayment period because a significant portion goes to the principal instead of the interest.
Drawbacks Of A Debt Consolidation Loan
It Is Not A Guarantee Of Becoming Debt Free
Why did you get into multiple debts in the first place? If it was caused by bad financial habits such as overspending, getting a loan for debt consolidation in Singapore may not be the solution. The cycle can continue.
It Requires Serious Commitment
When you qualify for a Singapore debt consolidation loan, it will appear as a new loan in your credit report. Therefore, you should commit to paying your monthly installments on time, or else you will lower your credit rating.
It Comes With Additional Fees
Lenders can charge additional fees such as prepayment, processing, and origination fees when giving this loan. Therefore, confirm with your lender before signing the loan contract.
Benefits Of A Personal Loan
Fast Processing Time
Once you submit the required documents and details, it takes less than 24 hours for a lender to approve a personal loan. It can also disburse the funds into your account within the same day.
Flexibility Of Use
There is no limit on how you can use personal loans in Singapore.
Fixed Interest Rates
The interest rates for this loan do not change. Hence, you can predict how much you will be paying per month.
Drawbacks Of Personal Loans
High Interest Rates
Since you don’t provide collateral for personal loans, lenders impose higher interest rates. This is to reduce the risk of losing significant amounts.
It Can Damage Your Credit Score
You may risk lowering your credit score if you send multiple personal loan applications to several lenders over a short period.
What Is A Debt Consolidation Plan?
It is a financial plan in Singapore that helps you to combine all your unsecured debts into one loan under one bank or financial institution. A lender will clear your outstanding debts as you focus on paying the DCP loan. A debt consolidation plan loan has a lower interest rate than your credit cards loans, making repaying easier.
What To Consider Before Applying
Before applying for a loan, consider the following:
How much is the lender charging the debt consolidation loans? Compare the interest rates of all your existing debts and what a lender offers. This will help you get a loan at the lowest rate.
As you compare which is better debt consolidation or personal loan, consider how much you owe the lenders. This is because if you have high debt, you may not get a loan covering all your debts. As a result, you may still have multiple debts to settle.
Are you eligible for a debt consolidation plan in Singapore? You must be a Singaporean or a permanent resident to get this loan. Also, you should earn between $20,000 and $120,000 per year, and your outstanding debt should be at least 12 times your monthly income.
Where To Get A Debt Consolidation Loan
You can get a loan for consolidating your debts from the following lenders:
Banks offer loans for debt consolidation in Singapore with varying terms and conditions. Therefore, you need to compare loan packages from different banks to get the lowest interest rate and one that suits your financial need.
The eligibility criteria are also strict because you need a good credit score. Lastly, the processing time can be long, probably, two weeks.
Licensed Money Lenders
You have an alternative if you do not meet the banks’ requirements. You can get a loan from licensed money lenders. These financial experts are more lenient with borrowers. Therefore, your application can go through if you have a poor credit rating.
Licensed money lenders are regulated by the Ministry of Law in Singapore. They operate under the provided guidelines, such as offering loans at an interest rate of at most 4% per month.
Comparing Between Debt Consolidation Loan And Personal Loan
If you have multiple loans from different lenders, you may be thinking of how to ease the burden by combining them. You can choose to take a debt consolidation or a personal loan.
But which is better debt consolidation or personal loan? Both loans are a perfect option depending on your financial situation. If you have multiple loans with high interest rates, you can get a loan for debt consolidation in Singapore at a lower interest rate. On the other hand, a personal loan could be the best option if you are in urgent financial need.
Whether you want a Singapore debt consolidation or a personal loan, you can contact Credit Thirty3. We are one of the trusted financial institutions in Singapore, providing loans to consolidate debts. Go to our official website, apply for a loan, and enjoy the lowest interest rates.