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.
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Comparison of Personal Loans vs. Debt Consolidation

Personal LoanDebt Consolidation
Application optionsPersonal LoanTypically applied for individually through banks, credit unions, or online lendersDebt ConsolidationApplied for to consolidate multiple debts, often through banks, credit unions, or debt consolidation companies
Repayment and loan termsPersonal LoanTerms vary widely, typically ranging from 1 to 7 years. Repayment can be fixed or variableDebt ConsolidationConsolidated debt is typically repaid over a longer period, often ranging from 2 to 30 years, depending on the amount and terms
Interest ratesPersonal LoanFixed, typically between 2.87% to 5.88%Debt ConsolidationRates 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 feesPersonal LoanOne-time origination fee, typically between 1% to 8%Debt ConsolidationThere 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 penaltyPersonal LoanSome lenders charge prepayment penalties if the loan is paid off earlyDebt ConsolidationSome 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:

Singapore Citizenship or Permanent Residency
Generally, you need to be a Singaporean citizen or a Permanent Resident (PR) to qualify for a debt consolidation plan.

Minimum income requirement:

Minimum income requirement
Most financial institutions will have a minimum income requirement. This can vary but typically ranges between S$20,000 to S$30,000 annually. The exact amount may depend on the lender and your existing financial obligations.

Total debt threshold:

Total debt threshold
There may be a maximum total debt threshold that you can consolidate. This limit can vary between lenders.

Good credit score:

Good credit score
A good credit score is usually required to qualify for a debt consolidation plan. This demonstrates your ability to manage credit responsibly. Each financial institution may have its own criteria for what constitutes a good credit score.

Stable employment:

Stable employment
Lenders may require proof of stable employment or a steady source of income. This helps ensure that you have the means to repay the consolidated debt.

Age requirement:

Age requirement
You must typically be between the ages of 21 and 65 to qualify for a debt consolidation plan. Some lenders may have different age criteria, so it's essential to check with them.

Existing debt obligations:

Existing debt obligations
You must have existing unsecured debts such as credit card balances, personal loans, or other forms of high-interest debt that you wish to consolidate.

Documentation:

Documentation
You'll need to provide documentation to support your application, including proof of identity, income statements (such as payslips or tax returns), and details of your existing debts.

Best Debt Consolidation Plans

Standard Chartered Debt Consolidation Plan

Interest Rate*
EIR: 6.79%
3.48%
Total Amount Payable
S$33,132
Processing Fee
S$199
Per Month
S$920
Online Promo:
Receive up to S$500 Cashback for new DCP and 6% Cashback when you refinance your existing DCP with SCB. T&Cs Apply
Valid until 30 Jun 2024 - See more details below
Apply Now

UOB Debt Consolidation Plan

Interest Rate*
EIR: 8.41%
4.5%
Total Amount Payable
S$34,050
Processing Fee
S$0
Per Month
S$946
Apply Now

HSBC Debt Consolidation Plan

Interest Rate*
EIR: 7.5%
4.2%
Total Amount Payable
S$33,780
Processing Fee
S$0
Per Month
S$938
Apply Now

Check out other Personal Loans with Low Interest Rates & Fast Approval

Explore Personal Loan

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.