Which Is Better – Debt Consolidation Or Personal Loan?
Navigating the world of personal finance can be a tricky affair, particularly for those unfamiliar with financial jargon. It can be difficult to know which route to take in order to get back on your feet, especially when faced with mounting debt.
Two popular options considered by many are personal loans and debt consolidation loans Singapore.
Understanding the differences between these two options can help you make an informed decision about which one is right for your situation.
In this article, we will look at which is better – debt consolidation or personal loan, what to consider before applying, and where to get one.
What Is A Debt Consolidation Loan?
A debt consolidation loan is an installment loan used to pay off or refinance multiple existing debts. This type of loan combines all existing balances into one monthly payment which makes the repayment process simpler and more manageable.
With a debt consolidation loan, you can pay off your existing debts at once and just focus on repaying one loan to one lender.
Taking a loan to consolidate debt is best suited for those with good credit scores and high amounts of debt to consolidate.
Debt Consolidation Loan Vs Personal Loan
The key difference between a debt consolidation loan and a personal loan is that a debt consolidation loan can only be used for consolidating debts, while a personal loan can be used for any purpose.
Personal loans are short-term installment loans which are available from banks, credit unions and other financial institutions.
A debt consolidation loan typically has lower interest rates compared to credit cards, which makes it easier to pay off the debt faster.
However, if you need to use the loan for other purposes, such as making a purchase or financing a business venture, then a personal loan would be the better option.
While you can get a personal loan in any bank or financial institution, debt consolidation loans are offered mainly by lenders specialising in consumer finance. However, banks offer personal loans for consolidating debts that are specifically designed to help with debt consolidation.
Pros And Cons Of A Debt Consolidation Loan Vs Personal Loan
When it comes to which is better, debt consolidation or personal loan, both have their own pros and cons which need to be weighed up before making your decision.
Debt Consolidation Loan Pros
- Simplified repayment process: Your finances can be simplified as you will be left with only one loan to pay off.
- Lower interest rates: Interest rates on debt consolidation loans are generally lower than the average credit card rate which can help you save money in the long run.
- Reduced monthly payments: By taking a loan to consolidate debts, the overall monthly payment can be reduced as the loan is paid off which helps provide more financial flexibility.
- Improve credit score: When you take Singapore debt consolidation loan, you get a chance to improve your credit score which can be beneficial for getting other loans or financing in the future.
Debt Consolidation Loan Cons
- Additional fees: Some debt consolidation loans may come with additional costs which need to be taken into account when making a decision.
- Potential for higher debt: While taking loans for consolidating debt can help reduce monthly payments, it also means that you will be in debt for longer which could result in more interest charges over time.
- Monthly commitment: For loan consolidation Singapore, you will need to make a commitment to paying off the loan which could be hard if you are already struggling financially.
Personal Loans Pros
- Flexible terms: With a personal loan, you can choose the loan amount and repayment period which suits your needs best.
- No collateral required: Most personal loans do not require any collateral which makes them an attractive option for those who do not have any assets to put up as collateral.
- Fast approval: Personal loans can be approved quickly which is useful if you need money urgently.
Personal Loans Cons
- Higher interest rates: Personal loan rates tend to be higher than debt consolidation loans which could mean you end up paying more in the long run.
- Credit check: Most banks and financial institutions will carry out a credit check which could delay the approval process or result in rejection if your score is too low.
- Debts may increase: Without proper financial management, personal loans could lead to an increase in debt which could make it harder to pay off.
What Is A Debt Consolidation Plan?
A debt consolidation plan (DCP) is a customised plan or programme that helps debtors manage and improve their financial situation by combining all of their debts into one loan.
Unlike a loan, which requires the borrower to make regular payments over a fixed period of time, a DCP allows borrowers to pay off their debt in installments or even reduce the amount they owe.
You generally have the option to customise your debt consolidation plan, which makes it easier to fit the repayment schedule into your budget.
What To Consider Before Applying
Before applying for a debt consolidation loan or personal loan, there are some key points that you should consider.
- Your credit score and financial situation
- The interest rate
- Additional fees
- The repayment period
- Eligibility criteria
Depending on which loan you choose, the terms and conditions may vary which is why it is important to do your research before making any decisions.
Debt consolidation loans are better if you have multiple debts which you need to pay off with a lower interest rate while personal loans are better if you have short-term financial needs.
Where To Get A Debt Consolidation Loan
Debt consolidation loans can be taken from banks, credit unions and online lenders.
You can get Singapore debt consolidation loan in most banks which may offer reasonable interest rates. However, you will need to consider the fees and other charges which can be associated with the loan.
- HSBC bank offers debt consolidation loans at around 3.4% interest
- DBS bank also offers debt consolidation loans with an interest rate of 3.58%
- POSB bank provides loans to consolidate debt at an interest rate of same 3.58%
Credit unions are similar to banks but they have lower interest rates which could make them a better option for those looking for debt consolidation loans. They may also have more flexible terms which can help make it easier to repay the loan.
You can also get debt consolidation loans from online lenders which may be more convenient but you will need to compare the interest rates to ensure you are getting the best deal.
The process of applying is also very convenient and you can usually get the loan approved in a matter of hours which makes it a great option for those who need money urgently.
Get The Right Debt Consolidation Loan
When it comes to which is better – debt consolidation or personal loan, it really depends on your individual circumstances.
If you have multiple debts which you need to pay off, then a debt consolidation loan is probably the better choice.
However, if you only have short-term financial needs which can be met with a personal loan, then that may be the better option for you.
No matter which route you decide to go down, it is important to make sure you get the right loan which suits your needs and budget.
Do your research, and compare interest rates and repayment periods before making any decisions. This will help ensure that you get the best debt consolidation loan which will help you pay off your debts quicker.
If you are still wondering about the right financial choice to make, Horison Credit can help.