Are you overwhelmed with mounting expenses from credit cards and other unsecured personal loans? A debt consolidation scheme is the best way to solve your loan problems. This allows you to pay the entire outstanding balance from all your personal loans. In Singapore, there are at least 14 banks and financial institutions that offer loan consolidation plans.
These include American Express, Bank of China, CIMB, Citibank, DBS/POSB, Diners Club and HL Bank. The other banks that offer loan consolidation comprise HSBC, ICBC, Maybank, OCBC, RHB, Standard Chartered and UOB. The terms, conditions and requirements will vary among these banks when reviewing loan applications. For instance, a DBS personal loan requires you to have a cashline and/or credit cards. You also need to have a deposit account that will be used for loan disbursement.
How Does Loan Consolidation Work?
Loan consolidation works by applying for one big loan from a bank or licensed moneylender to pay off all your personal loans. Singapore banks require borrowers to be local or permanent residents to qualify for a loan. Try not to be anxious about the enormous amount when you apply for loan consolidation. Peace of mind is arguably the primary advantage of borrowing money from one lender to close your other loan obligations.
By doing so, you no longer have to invest too much time and effort in monitoring too many due dates from credit cards and other loan obligations. Your credit score can also take a hit when you owe money from different lenders. More importantly, the effective interest rate (EIR) of personal loans is much lower. If you borrow from credit cards and other unsecured credit lines, the maximum interest rates may reach almost 29% per year!
That’s why you shouldn’t even consider loan consolidation by borrowing from your credit cards. In Singapore, personal loans remain the better alternative for eliminating several unsecured debts based on interest rates. Credit cards should be a last-ditch effort but even so, you need to prepare for steep charges. It’s also one reason why some people can’t seem to recover financially, as interest fees from credit cards constantly add up over time until you fully pay the principal loan amount.
How Much Can You Borrow for Personal Loan Consolidation?
You can review the estimated amount under a loan consolidation plan by adding the total amount of your existing personal loans and the outstanding interest fees. The lender will then add a 5% fee to the sum to come up with the loan amount under your debt consolidation arrangement. The 5% charge will serve as a cushion for covering unexpected loan charges such as late payment fees and additional interest if applicable.
For instance, let’s say you applied for an OCBC or a DBS personal loan with a loan tenure of up to 60 months to pay off all your debts. The bank may charge a 5% fee since paying your entire obligations won’t happen instantly. You can expect to receive the 5% charge as a cashback by the end of the personal loan tenure. The maximum amount that you can borrow will also depend on the loan tenure.
Requirements for Debt Consolidation Plan
While banks have different rules for approving personal loan applications, there are some requirements that are common among many lenders. Some banks will only process a personal loan application if your minimum annual income ranges from $30,000 to $120,000. You won’t be eligible if you have more than $2 million in net personal assets, which include real estate.
If you have an investment in shares, the amount will also be included to your net personal assets. You can determine the estimated figure by deducting your liabilities such as mortgages and unpaid taxes to your existing assets. Take note that you should be heavily indebted to be eligible for debt consolidation schemes. In Singapore, personal loan applications may not be approved if your outstanding balances are worth less than your annual salary. Some lenders may require a benchmark figure such as a minimum of $30,000 to approve a personal loan consolidation.
What Happens After Your Personal Loan Application?
If you apply for a loan from a bank like DBS/POSB or OCBC, they will simply settle your loan obligations from your creditors. You need to pay off the remaining balance from credit cards and other loan balances if the debt consolidation amount isn’t enough to cover all your loan obligations. You can also refinance a loan consolidation deal when you encounter a better deal with lower interest rates.
So let’s say you borrowed from DBS/POSB and saw a better loan offer from OCBC, you must have a settlement notice from DBS/POSB before you can refinance your existing loan consolidation deal. Take note of the EIR and other upfront charges like closing costs before you apply to a different bank for a new consolidation plan.
What If You Are Not Eligible?
Non-locals or borrowers from overseas who recently started working in Singapore won’t be eligible for debt consolidation plans, simply because most lenders require permanent residency or citizenship status. If you really need to consolidate debt, you should consult licensed money lenders for a personal loan. Singapore regulates moneylending activity whether or not you are from overseas, so you won’t have to worry about being a victim of loan scams.
If your total outstanding balances cost less than your annual income, it’s another reason why you may not be eligible for a personal loan under a debt consolidation agreement. On the bright side, it means that your loan obligations remain manageable. You can still apply for a low-interest personal loan if you need to settle a debt from your credit card accounts.
A personal loan for the purpose of debt consolidation is a great way to reduce emotional and financial stress. If you are still undecided, you can review the best personal loan Singapore packages with cashback options by asking for advice from a professional. Call GM Creditz today and learn more about our Personal Loan offers.