Are you feeling overwhelmed by multiple recurring loan payments every month? If so, debt consolidation in Singapore could be a viable solution for you.
It can help you manage your finances and take the stress of multiple payments out of your life. But how does it work? Are you eligible for it?
This blog post will explore how people with fair credit can access debt consolidation loans in Singapore, and how to get a debt consolidation loan with fair credit.
Read on to learn how this might work for your financial situation.
What Is A Debt Consolidation Loan?
A debt consolidation loan is a personal loan that can help you simplify and streamline your loan repayments by merging multiple loans into one.
Let’s say you have three separate loans – a personal loan for a car, for home improvements, and for medical bills – that each has different interest rates and varying repayment terms.
A debt consolidation loan can bring all these loans under one umbrella, giving you a single payment due every month.
This will reduce your interest rate and simplify the repayment process, making it easier for you to manage.
How To Get A Debt Consolidation Loan With Fair Credit
If you have fair credit, you may get access to a debt consolidation loan from most banks and licensed money lenders.
However, the interest rates on these loans will likely be higher than those with excellent credit scores.
Here are some tips for getting a debt consolidation loan with fair credit:
Shop Around For The Best Rates
To ensure you get the best deal possible, shop around and compare different lenders’ interest rates.
Check Your Credit Score
Before applying for a debt consolidation loan, find out your current credit score. This can help you determine what kind of interest rate and repayment terms you can expect.
Improve Your Credit Score
If you have time, work on improving your credit score before applying for a debt consolidation loan. This could help you access a better loan option and a more favourable interest rate.
Choose The Right Repayment Period
Be sure to select a repayment period that you can comfortably manage. A longer repayment period may mean lower monthly payments, but it could also increase the total cost of the loan.
But how can you exactly benefit from debt consolidation? Let’s see a few examples.
5 Uses Of A Debt Consolidation Loan
A consolidated loan in Singapore could be a lifesaver for many, as most people have unpaid loans or debts. Here are five ways you can use debt consolidation to your advantage:
1. Joint Account Loans
If your joint account partner can’t afford to pay their instalments, applying for debt consolidation can be helpful.
2. Multiple Personal Loans
It can be difficult to manage the different repayment schedules and interest rates if you have multiple personal loans. Consolidating these into one loan can help simplify the repayment process.
3. Student Loans
A debt consolidation loan can help combine multiple student loans into one loan with one repayment schedule.
4. Credit Card Loans
A debt consolidation loan can help you get rid of high-interest credit card debt by merging it all into one loan with a lower interest rate.
5. Renovation Loans
If you’re looking to renovate your home but have multiple outstanding loans, a debt consolidation loan can help you bring all these together into one single payment.
Where And How To Apply
You can apply for debt consolidation loans in Singapore at credit unions, banks, and licensed money lenders.
While banks might have complex and lengthy requirements, applying to money lenders is simple:
- Calculate your debt to determine how much you need to borrow.
- Shop around and choose a money lender.
- Submit your loan application for the required amount.
- Get informed that your application is approved.
- Sign the documents and get the loan amount on the same day.
For Singapore citizens and permanent residents:
- Copy of your NRIC or passport for identification
- Copy of your Central Provident Fund (CPF) or Bank Statements
For foreigners residing in Singapore:
- S Pass, E Pass, or work permit
- Tenancy agreement and utility bills as proof of residence
- Pay slips or bank statements as proof of income
That said, you must understand the difference between a debt consolidation loan and Debt Consolidation Plan (DCP).
Debt Consolidation Loan Vs DCP
Let’s quickly review the differences between a debt consolidation loan and a DCP.
- A debt consolidation loan is a personal loan you can get from a licensed money lender and merge your existing loans or debts into a single loan.
A DCP is a debt refinancing program only offered by certain partner banks or financial institutions.
- You can merge most personal loans like credit card debts, medical, education, and renovation loans with a debt consolidation loan.
However, a DCP doesn’t allow such flexibility. A DCP excludes medical loans, renovation loans, joint account loans, education loans, and credit facilities for business purposes.
- Getting debt consolidation loans from licensed money lenders in Singapore is easier as they ask for a few basic documents to get you started.
A DCP, on the other hand, has stricter qualification criteria. It requires applicants to have an annual income between $20,000 and $120,000 to be eligible for it.
Pros And Cons Of A Debt Consolidation Loan
Here’s how you can benefit from a debt consolidation loan:
One Payment To Take Care Of
A debt consolidation loan consolidates multiple loan payments into one, making it easier for you to track your finances.
Lower Interest Rate Than Before
This loan has a lower interest rate than all of your other current debts or loans (that you will combine). However, you do need to research the market in order to get the best offers.
Improvement In Your Credit Score
Since making one monthly payment is easy, you’re likely to pay it in time. This good payment behaviour will likely improve your credit score in the long run.
Here are some potential drawbacks of a debt consolidation loan:
More Interest Overall
A lower interest rate sounds good for a start. But it will extend the repayment period, which means you’ll likely pay more interest overall.
Your Collateral Could Be At Risk
Since debt consolidation loans are actually unsecured personal loans, defaulting on them means you could lose the collateral you’ve paid for your secured personal loans.
Inherit Bad Spending Habits
Seeing multiple debts consolidated into one can often mislead you into thinking that you have reduced your debt. This could lead to the continuation of bad spending habits and result in more debt.
Debt Consolidation Can Simplify Your Finances
Debt consolidation can be a beneficial tool to get your finances back on track. You can easily consolidate multiple loans into one payment with a debt consolidation loan, but you need to be aware of the pros and cons of this option.
Still wondering how to get a debt consolidation loan with fair credit?
About Ashley Sim
Calling herself a “professional multi-tasker”, Ashley worked as a relationship manager in a bank for five years. She left her job just before the pandemic happened and became a freelance writer for about a year. Now, she’s making the most of her love for writing and knowledge of the banking and financial industry in her role as a content marketing lead. She hopes to help people make better financial decisions through her content and campaigns.