What Is A Money Lender Debt Consolidation Plan?
September 29, 2022
Taking loans from different financial institutions might seem like a great idea until you have to repay them in multiple installments.
But what if there is a way to aggregate your loans with a single financial institution and make monthly repayments just once?
You can do this by working with a debt consolidation plan money lender. Read on to find out how it works.
What Is A Debt Consolidation Plan?
A debt consolidation plan (DCP) is a debt refinancing scheme that combines all existing loans with different financial institutions into one single loan.
This plan covers loans taken with different financial institutions, including banks and money lenders.
Normally, people who take loans from different financial institutions have to repay them one after the other.
But you can combine all unsecured loans and repay them by applying for a DCP with a debt consolidation plan money lender.
Apart from the convenience this provides, debt consolidation plans offer various benefits.
For instance, such a plan offers better interest rates, which help to lighten your financial burden.
It also has a longer loan tenure, which means you’ll have more time to pay back your debts.
When you combine all your loans into a single payment plan, you’ll save yourself the stress of tracking different repayment deadlines and payments.
The debt consolidation plan is one of four main types of personal loans in Singapore. The other three are personal installment loans, personal lines of credit, and balance transfers.
Like the debt consolidation plan, balance transfer personal loans also involve consolidating debts from multiple channels into a single account.
However, the main difference is that the debt consolidation plan comes in handy when your total debt exceeds 12 times of your monthly earnings.
How It Works
The first thing to know about debt consolidation loans in Singapore is that they only cover unsecured credit facilities. This includes credit card loans, personal loans, and personal lines.
Singaporeans and permanent residents become eligible for this plan when they have debts that are over 12 times their monthly income.
When you apply for this loan plan, the bank or a licensed money lender gives you money that will cover the debts you owe. The funds include charges incurred.
If you’re applying for the first time, the bank will provide an additional 5% of the total amount paid to consolidate debts.
This additional fee will cover any charges incurred during the period it took to process your debt consolidation application. It is paid directly to the financial institution you borrowed from.
When your debts have been settled, you’ll commence payment for a single loan with lower interest rates.
The consolidated plan tenure is usually long. Not only does this give you more time to pay back what you owe, but it also allows you to make lower monthly payments.
The loan repayment plan aims to help Singaporeans clear huge debts and develop better credit scores.
What A Debt Consolidation Plan Can Be Used For
As mentioned, a debt consolidation loan is only used to settle unsecured loans in Singapore. This includes:
Credit Card Loans
With so many bills to pay, it’s easy for your credit card loans to spiral out of control.
However, credit card loans are unsecured, which means you can consolidate debt loans using a DCP.
This gives you more freedom to repay your loans and allows you to build your credit score.
Unsecured Personal Loans
Licensed money lenders in Singapore offer citizens and permanent residents unsecured personal loans. You can get such loans from multiple channels.
But when the debt piles up and becomes 12 times that of your monthly income, you can apply for a debt consolidation plan to clear them.
Credit Lines
These are flexible loans from financial institutions that you can access when needed and repay over time.
But if you cannot repay your credit lines, you can always apply for debt consolidation to reduce your repayment burden.
What A Debt Consolidation Plan Excludes
As debt consolidation plans in Singapore only cover unsecured loans, this means they can’t cover secured loans such as car and mortgage loans.
However, there are certain unsecured loans that a debt consolidation plan can’t cover. This includes renovation loans, education loans, business financing, or medical loans.
Who Can Apply For A DCP?
You can only apply for a debt consolidation plan if you’re a Singaporean or a permanent resident.
To qualify for this loan, you must be gainfully employed and earn an annual salary between $30,000 and $120,000 with a net personal asset that is less than $2 million.
Also, you should have interest-bearing debts on credit facilities that amount to at least 12 times your monthly earnings.
The documents required to apply for a DCP include the following:
- Your latest Credit Bureau Report
- Photocopy of the front and back of your NRIC
- Latest income statements
- Most recent credit card and unsecured credit statements
- Confirmation letters indicating unbilled balances for unsecured installment plans
It’s worth noting that when your DCP is active, you can’t apply for loans or a new credit card until your debts are less than eight times of your monthly income.
What To Consider Before Applying For A DCP
The following are things you should take into account before applying for a debt consolidation plan:
Are You Eligible?
There’s no need to waste your time applying if you’re not eligible for a DCP.
Hence, you should carefully go through the eligibility section of this article to confirm if you’re eligible for a DCP.
Can You Pay Off Your DCP Quickly?
One of the main things to consider before taking a DCP is just how quickly you can repay it.
Although a DCP gives you more time to repay your debt, it also means you’re in debt for much longer.
Unless you can repay DCP quickly, the interest charges you’ll pay over the plan tenure can land you in more debt.
Hence, it’s important to quickly pay off your DCP to avoid sinking deeper into debt.
Can The Financial Institution Reduce The APR?
A debt consolidation plan money lender may be able to help shave off your annual percentage rate (APR) a bit if you agree to certain terms.
One such way is by opting for autopay arrangements with your bank. This means your loan repayment is automatically deducted from your bank account once you receive your monthly income.
Reducing the APR on your debt consolidation plan can go a long way in reducing your financial burden.
What Is The Total Cost Of Your DCP?
Before applying for a DCP, you should know the total cost of the loan. This includes the total interest rate, fees, and principal.
Your debt consolidation plan money lender should give you a Truth in Lending disclosure that states the total cost, monthly payments, total interest charges, and number of payments.
This will help you make an informed decision on whether a DCP is a right solution for you or if you should explore other options.
Alternatives To The DCP
The following are other loans that can be used for consolidating debts:
Personal Loan
A personal loan refers to money that you can borrow from licenced money lenders or banks in Singapore.
These loans are repaid via fixed installments that could take up to 60 months depending on the amount you borrowed.
The processing fee is usually between 0-10% of the amount you borrowed. Instead of applying for a DCP, you can take a personal loan to cover outstanding debts from different channels.
Balance Transfer
Just like a DCP, balancer transfer allows you to combine debts from multiple channels to a single credit line or an interest account.
But unlike a debt consolidation plan, you can take a balance transfer to settle debts that are less than 12 times your monthly income.
Personal Line Of Credit
As explained, a personal line of credit gives you access to a specific amount of funds when needed.
This option is quite helpful when you’re in urgent need of cash. However, you can only withdraw two times of your monthly income.
This means if your debt exceeds that amount, you can’t repay it with a personal line of credit.
Use A Money Lender Debt Consolidation To Reduce Your Debts
Are you looking to apply for a DCP but aren’t sure which debt consolidation plan money lender to use?
GS Credit is one of the best licensed money lenders in Singapore, and a tested and trusted place to apply for a debt consolidation plan.
We provide debt consolidation plans with low interest rates to help improve your financial situation.
Contact us now or visit the GS Credit website to apply for a loan today.
