What Is A Debt Consolidation Loan?

Written by 1AP Credit on December 2, 2022

Having multiple loans across several loan providers can make it challenging to track all your debts and pay them back as when due.

Not paying back on time will impact your credit score, and lead to more debt in terms of late payment fees. When combined, you’ll also have to pay a higher interest rate for all loans.

To prevent all this, you can choose to combine all your loans into a single loan, so you make only one monthly payment. This is what is called debt consolidation.

Keep reading to learn more about what is debt consolidation loan, how you can consolidate your debt, and which loan providers offer debt consolidation.

What Is A Debt Consolidation Loan?

A debt consolidation loan helps debtors struggling with multiple unsecured debts to combine all their loans into one single loan with a loan provider.

Instead of paying multiple installments at different interest rates and dates to numerous creditors, you can make a single monthly repayment to one creditor at a lower interest rate.

This makes it easier to repay a single loan and prevents you from getting overburdened with debts.

How It Works

A debt consolidation loan works by combining all your loans into a single loan. If you have multiple loans across different loan providers, tracking them and paying for them at different times can get overwhelming quickly.

With debt consolidation, you select a loan provider that offers the service to give you a single loan. This loan usually comes at a lower interest rate than the combined interest rate of the multiple loans.

If you’re eligible, and your loan application is approved, the loan is granted to you, and all your outstanding unsecured credits are repaid and suspended. Now, you only have to pay a single monthly repayment to that loan provider for every month of the repayment period.

The repayment period can range from two to 10 years depending on the loan provider.

When You Should Opt For Debt Consolidation

If you are wondering when is the best time to consolidate your debt, we would say when it has been overwhelming to many multiple loans.

Managing multiple loans can be challenging and place a financial and mental strain on you. This can lead to more debt and poor health.

Take for instance you owe five creditors $14,000 each, at different interest rates, with different repayment dates. It becomes hard to keep track of them. You might end up just focusing on repaying one loan, and incurring late payment fees on the others.

However, when you consolidate all your loans, it saves you the headache of managing multiple loans and makes repayment much easier.

Pros And Cons Of A Debt Consolidation Loan

While a debt consolidation loan seems appealing, it might not be the right move for everyone. The following pros and cons below will help you decide if it’s best for you.

Pros

Single Monthly Payment

Instead of paying multiple creditors which can get challenging, you only need to pay one creditor. This makes it easy for you to keep track of your debt, saving you time, energy, and the consequences of delayed payment.

Save On Interest Rates

Debt consolidation helps you to pay your loan at a lower interest rate per annum compared to having multiple interest rates for multiple loans.

Longer Repayment Period

Now, you can conveniently pay back your loan for a longer time. This removes the pressure of short repayment periods.

Typically, the loan tenure for debt consolidation loans ranges from two to 10 years depending on the loan provider.

Credit Facility To Finance Daily Needs

If you get a debt consolidation loan from banks, for instance, you get an additional credit facility of 1x your monthly income to make it convenient to pay for your daily needs. This comes at a fee, and you can choose to take it out or not.

Improves Your Credit Score

As repaying the loan has become easier – a single monthly payment – you can now avoid delayed payments that affect your credit score.

Paying your new loan when due consistently will help improve your credit rating over time .

Cons

Potential Added Costs

A debt consolidation loan can come with additional costs such as annual fees and processing fees.

In addition, cancellation fees can be incurred on other loans for early repayment. These can lead to more costs you might not have foreseen.

Doesn’t Get Rid Of Poor Financial Habits

If you have a habit of borrowing excessively or gambling or spending too much, a debt consolidation loan will not get rid of those habits. You may still find yourself in more debt if you don’t fix those bad habits.

Where To Get Debt Consolidation Loans

Two loan providers offer debt consolidation loans. They are licensed money lenders and banks.

Licensed Money Lenders

Debt consolidation money lenders offer debt consolidation loans to borrowers overwhelmed with managing multiple loans. The common criteria for eligibility are that you must be:

  • 21-65 years of age
  • A Singaporean or permanent resident
  • Earn a minimum of at least $20,000 annually

Once your loan has been granted, you’ll be required to suspend other credit facilities, pay them off, and now make monthly payments to the money lender.

Money lender repayment plans, including the loan tenure, are different from what banks offer. The loan tenure is usually within two to three years.

Banks

Consolidating debts with a bank is also another viable option when it comes to debt consolidation loans. This is called a debt consolidation plan.

For banks, in addition to your loan account, you’re given a revolving door credit facility which is 1x of your monthly income to conveniently meet your daily needs. This comes at a fee, and it’s your choice to take it out or not.

Compared to money lenders, banks offer a longer repayment period, which can be up to 10 years.

Once you have obtained a debt consolidation loan from a bank, you can switch to another bank if needed. The only condition is that you must wait at least three months from your last approval.

Common criteria for eligibility include:

  • You must be 21 to 65 years old
  • A Singaporean citizen or permanent resident
  • You must earn at least $20,000 and below $120,000 annually, with net personal assets worth at least $2 million
  • All outstanding unsecured balances must exceed 12 times more than your monthly income

Other Alternatives To Debt Consolidation

If you don’t want to go through the route of debt consolidation to manage your multiple debts, you can consider other options.

Get Additional Income

If your income is not enough to service all your debts, an additional income can be helpful. You can take on part-time physical or online jobs to rake in extra cash.

While this extra income source may help reduce the financial strain, you might still find it difficult to manage the different interest rates and due dates.

Sell Items

Valuable items can be sold for cash to finance your loan. Some loan providers might permit you to lodge your valuables or property as collateral against your loan. Find out if your loan provider allows this, and how it works.

A Debt Consolidation Loan Can Help You Manage Your Debts

Managing multiple loans can be stressful, so let us ease that burden for you. 1AP Capital, a licensed money lender in Singapore, offers debt consolidation loans at some of the best interest rates.

In addition, we provide you with the best repayment structure to conveniently repay the loan without putting you under any financial strain.

Let’s get you started on your journey to debt relief right away. Call us at +65 6533 5335 to speak to one of our loan experts, or apply now for a debt consolidation loan.

Frequently Asked Questions

What Type Of Unsecured Loans Do You Consolidate?

1AP Capital consolidated various types of unsecured loans, including those not permitted by banks such as renovation loans, education loans, joint account loans, medical loans, and business-related credit facilities.

We also consolidate loans you owe to other money lenders.

Am I Eligible For A Loan?

To be eligible for a loan with 1AP Capital, you must be:

  • 18 to 65 years old
  • A Singaporean, a permanent resident, or a foreigner residing in Singapore
  • Earn at least $20,000 per year

What Documents Do I Need To Apply For A Loan?

Singapore citizens and permanent residents are required to have:

  • NRIC
  • Proof of income (bank or CPF statements)

For foreigners:

  • Employment pass
  • Proof of residency
  • Bank statements/payslips

What If I Already Have A Debt Consolidation Loan? Can I Refinance The Loan With 1AP Capital?

Yes. However, you’ll need a settlement notice from the financial institution before you apply for a refinancing loan. The outstanding balance on the notice will be the amount you’ll refinance.

How Long Before My Loan Is Granted?

If you have all your documents ready, your debt consolidation loan can be approved within an hour.

Is There A Maximum Or Minimum Loan Amount I Can Take From 1AP Capital?

No, there is no minimum or maximum once you meet the eligibility criteria.

However, we will determine if your preferred loan amount will be approved. If it isn’t, we will recommend the right loan amount that will be sufficient to pay off all your outstanding credits.

Do You Charge Upfront Fees?

We don’t charge upfront fees for debt consolidation loans, or any other loan in particular. We might charge admin fees once the loan has been granted.

What Is The Maximum Tenure Of The Loan?

We’ll review your loan, and suggest the right tenure, so you can pay off your loan quickly and save on interest fees.

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