Home loans, car loans, study loans, credit card payments.
Getting confused? Loans and debts sound intimidating. However, it is actually common to take on loans to purchase necessities, food, cars, houses and more. In fact, based on a research in 2017, at least 4,000 Singaporeans hit unsecured debt levels of 12 times their monthly income every month. More than 1 million Singaporeans take on unsecured loans and this figure has only risen further in recent years.
Getting loans is not a huge problem unless you miss payments and incur fees and more interest. When there are too many loans to repay, it gets very confusing and missing one or two payments usually burns a large hole in one’s wallet. Hence, to make things easier, debt consolidation plans were introduced.
Debt consolidation plans make your lives easier by combining all credit card debts and personal loans into one fixed monthly repayment. This decreases the chance of missing out payments and allows borrowers to reorganize their finances. Debt consolidation plans usually provide better interest rates and longer loan tenures so that individuals can comfortably repay their loans.
Basically, your debts will be simplified into one.
While taking on another loan to repay existing debts may sound illogical, debt consolidation plans are actually one of the best ways to get out of credit card debts or the personal loan trap.
Credit cards are known to have notoriously high interest rates from 24% to 28% per annum. Missing a single repayment could cost you hundreds or even thousands of dollars. Debt consolidation plans offer lower interest rates ranging from 9% p.a. and above*. Not only that, they also allow borrowers to choose their preferred loan tenures for comfortable repayments.
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*Final interest charged varies for each applicant.
Some borrowers may not be aware of debt consolidation plans or that they need to apply for a debt consolidation plan. The following are some indicators that there may be a need to apply for this type of loan:
1. The borrower has been defaulting on loan repayments:
Continuous default is one major sign that a borrower should consider taking up a debt consolidation plan. Servicing many debts at the same time can become confusing and if the borrower gets to a point where he or she begins to default or accidentally miss out certain payments, then it is probably the right time to take up the debt consolidation loan to simplify the loans.
2. The borrower has unmanageable amounts of debt:
If one is in huge debt and it has become increasingly difficult to keep track of all of the multiple lenders, then this is a sign that the borrower needs a debt consolidation loan plan. Getting a debt consolidation plan will help to lower or maintain total interest paid and provide borrowers with more time for repayment.
3. High rates of interest on the loans:
If one has high rates of interest on all the existing loans, especially credit card debts which have extremely high interest rates of 24% to 28% p.a., then this is also an indicator that a debt consolidation plan is needed. The borrower will benefit from a much lower rate of interest after getting all the loans consolidated into one.
There are 8 benefits one can enjoy when they sign up for a debt consolidation plan with LendingBee.
1. No more default penalties
The borrower may have incurred huge penalties from defaulting on previous multiple loans. Each penalty can cost hundreds or thousands of dollars and may even hurt the credit score of the borrower. When the debt consolidation loan is obtained, all the existing debts are merged into one and the borrower remains with a single loan. The borrower will be able to focus on paying only one loan and the likelihood of defaulting will be minimal. This will eliminate the penalties that would have been incurred and it is a great benefit because the amount can be substantial.
2. Increased convenience
After obtaining the debt consolidation plan, the borrower is immediately relieved from the confusion of calculating the payments and interest accruing to multiple lenders on a monthly basis. It becomes easier to pay a single loan and the borrower is able to plan better and make the payments consistently. They will be able to budget their financer clearly. The borrower is able to have peace of mind and will finally be able to free themselves from the pressure of having to deal with several lenders at the same time.
3. Better credit ratings or credit scores
The borrower is able to start building a good credit rating after taking a consolidation loan. The defaulting on the previous debts could have caused the credit score of the borrower to become low. Once the debt is consolidated, the borrower will be able to turn around the negative credit rating by paying the new debt consistently and promptly. Good credit scores are earned when one makes punctual and full repayments. A good credit score is important because it will help the borrower to access credit easily in future, especially for important purchases such as homes, cars or even business ventures.
4. Just a single interest rate
Before consolidating the debt, the borrower has the challenge of dealing with several different rates of interest on multiple loan amounts. This usually creates higher costs, and it is difficult to fully follow the different rates charged especially if certain lenders prefer flexible and changing interest rates. The consolidated loan will give the borrower a single fixed rate of interest at a lower cost, creating good savings.
5. Less administration fees
Many lenders do not charge any extra processing fee when facilitating the debt consolidation loan. The borrower also ends up saving the administration fees that are charged when one is servicing multiple loans. The amount of these administration fees could become quite hefty, thus resulting in a major saving.
6. Flexible loan tenures
Debt consolidation loans tend to have loan tenures that are flexible and they can go up to a period of 36 months*. This depends on each individual and is important for the borrower because it gives him or her sufficient time to clear off the entire debt. One should choose a repayment plan that allows him or her to repay the loan comfortably, while at the same time not affecting their daily lives too much. The borrower is able to reorganise his or her debt consistently during the entire period of the loan term, resulting in a total pay off.
7. Several convenient ways of payment
There are several convenient ways of making the payments of a debt consolidation plan. The first is through online payment to the moneylending institution, and this allows borrowers to make payments from any convenient location. They can pay from their computers or from their mobile phones. Other modes of payment are by cash or by cheque. The borrower has the freedom to choose the most suitable method of payment for themselves.
8. Ease of application and approval
Debt consolidation loans are easy to apply for and they also do not require a huge number of documents in order to be approved. This is a great benefit to the borrower because he or she is able to reorganise the debt sooner rather than later. In certain cases, the earlier they sign up for the plan, the more they will be able to save on interest charged and late fees.
*Final loan tenure varies for each applicant.
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