Personal Loans vs. Debt Consolidation
The key reasons why many individuals seek personal loans often include consolidating debt and/or refinancing high-interest debt rates.
Debt consolidation entails merging multiple credit card balances into a single monthly payment, achieved by obtaining a personal loan of sufficient size to settle all outstanding accounts, but how is it different from personal loans?
In this quick guide, we'll help you differentiate between the two, and let you become more confident in choosing the more suitable one for your financial situation.
Comparison of Personal Loans vs. Debt Consolidation
| Personal Loan | Debt Consolidation | |
|---|---|---|
| Application options | Typically applied for individually through banks, credit unions, or online lenders | Applied for to consolidate multiple debts, often through banks, credit unions, or debt consolidation companies |
| Repayment and loan terms | Terms vary widely, typically ranging from 1 to 7 years. Repayment can be fixed or variable | Consolidated debt is typically repaid over a longer period, often ranging from 2 to 30 years, depending on the amount and terms |
| Interest rates | Fixed, typically between 2.87% to 5.88% | Rates can vary based on creditworthiness and the type of debt being consolidated, but can often be higher than credit card interest rates, typically between 3.48% to 6% |
| Processing fees | One-time origination fee, typically between 1% to 8% | There may be origination fees associated with the new loan, but some debt consolidation options don't charge upfront fees, typically range from $0 to $600 or more |
| Early repayment penalty | Some lenders charge prepayment penalties if the loan is paid off early | Some consolidation loans may have prepayment penalties, but it varies by lender and loan loterms |
*All figures and data above are accurate as of 4 April 2024, as per the respective banks’ interest rates, fees and loan terms listed on MoneySmart’s Personal Loans and Debt Consolidation Plans listing pages.
How Do I Qualify For A Debt Consolidation Plan?
In Singapore, qualifying for a debt consolidation plan typically involves meeting certain eligibility criteria set by banks or licensed moneylenders. Here are the general requirements.
Singapore Citizenship or Permanent Residency:
Minimum income requirement:
Total debt threshold:
Good credit score:
Stable employment:
Age requirement:
Existing debt obligations:
Documentation:
Best Debt Consolidation Plans
- Interest Rate*
EIR: 6.79% - 3.48%
- Total Amount Payable
- S$33,132
- Processing Fee
- S$199
- Per Month
- S$920
- Interest Rate*
EIR: 8.41% - 4.5%
- Total Amount Payable
- S$34,050
- Processing Fee
- S$0
- Per Month
- S$946
- Interest Rate*
EIR: 7.5% - 4.2%
- Total Amount Payable
- S$33,780
- Processing Fee
- S$0
- Per Month
- S$938
Alternatively, you may explore these Personal Loan products
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Standard Chartered CashOne
- Interest Rate
- From 2.88%
- Total Amount Payable
- S$10,288
- Processing Fee
- S$0
- Per Month
- S$857
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- Interest Rate*
- From 2.68%
- Total Amount Payable
- S$10,268
- Processing Fee
- From 1% of Approved Loan Amount
- Per Month
- S$856
UOB Personal Loan
- Interest Rate*
- From 2.88%
- Total Amount Payable
- S$10,288
- Processing Fee
- 0%
- Per Month
- S$857
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HSBC Personal Loan
- Interest Rate*
- From 2.92%
- Total Amount Payable
- S$10,292
- Processing Fee
- S$0
- Per Month
- S$858
Get attractive gifts like an Apple 11-inch iPad Air Wi-Fi 128GB (worth S$899) or a Sony PlayStation® 5 (SLIM) Digital Edition (worth S$669) or an Apple 10.2" iPad 64GB (worth S$504) or a Sennheiser MOMENTUM True Wireless 4 Earbuds (worth S$449) or up to S$1,000 Cash via PayNow, when you apply for a min loan of S$8,000 with a min 3 year loan tenure! T&Cs apply.
CIMB Personal Loan
- Interest Rate
- From 2.80%
- Total Amount Payable
- S$10,400
- Processing Fee
- S$0
- Per Month
- S$867
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Check out other Personal Loans with Low Interest Rates & Fast Approval
Frequently Asked Questions
Is there a difference between a personal loan and a debt consolidation plan?
- Yes. A personal loan is a type of loan offered by financial institutions such as banks, credit unions, or online lenders. It is typically an unsecured loan, meaning it does not require collateral, and the borrower receives a lump sum of money which is repaid over a fixed period of time. On the other hand, a debt consolidation plan (DCP) is a specific financial arrangement designed to consolidate multiple existing debts into a single loan with potentially better terms, such as lower interest rates or longer repayment periods.
What is the minimum income requirement for a debt consolidation plan?
- This can vary from plan to plan, but typically ranges between S$20,000 to S$30,000 annually.