Simply put, a debt consolidation loan is a single loan that combines multiple loans into a single loan, offering a fixed interest rate, fixed tenure, and automatic payment every month. Imagine it as taking a new loan with a financial entity, such as a licensed moneylender, and having the moneylender consolidate the various payments on your behalf. Licensed moneylenders in Singapore are capped at a max of 4% interest per month, making it a much more optimal option to service debts that charge far higher rates, or when banks do not approve your loan due to poorer credit rating.
Debt consolidation loans in Singapore offer a range of other benefits, such as maintaining your credit rating and increased flexibility. Defaulting on previous debts can negatively impact one’s credit score, making it harder to borrow in the future. By taking this loan, it reflects the ability of the lender to pay punctually and in full, making it easier to get approval for future loans. The increased flexibility of a single payment per month also allows the lender to utilise their funds more efficiently, helping them improve their quality of life and repay the loan earlier.
A debt consolidation loan does not reduce the principal you owe for your existing debts. Rather, it extends the tenure of your loan repayment with a much more serviceable interest rate and regular monthly payment. Licensed moneylenders will also come up with a long-term plan for you to service the loan, taking in your financial circumstances and needs.