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Debt Consolidation, Singapore: is a consolidation Loan a good idea?

With the onset of the pandemic, many people lost their job; making quite a few sought loans from the bank in an attempt to make the ends meet or to cover up for the money they had fallen short on for some major activity they had planned for their future, like marriage and education. However, with time, debts kept piling up for many and to cover up the expenses, more than one loan was taken by quite a few individuals.

And while taking more than one loan is not illegal, it does put a strain on a person when they are attempting to pay each back altogether – the total of the equated monthly instalment (EMI) for each loan becomes quite high when being asked to pay together. In such instances, it is better to take a debt consolidation loan to cover up and pay for all the previous loans – making the EMI much easier to manage and pay for.

What is a debt consolidation loan?

Debt consolidation is a loan taken to pay up all the previously taken loans from a bank – in a nutshell, it is a loan that combines the amounts of the previous loans with an entirely new interest rate and EMI amount. This new loan plan makes it more manageable to pay for an average person than the collectively high EMI of two or three loans together in a month. For such debt consolidation Singapore has many banks as well as companies offering personalized offers for each individual.

debt consolidation loan

How does it work?

While one may think a higher loan means higher interest, it is not true – each loan plan is unique and a person can choose their consolidation loan plan by discussing it with their financial advisor or the financial counsellor appointed by the bank to them. Once the interest rate is fixed and decided, the EMI comes next; which is quite low in comparison to paying the high collective EMI of several debts together.

This low EMI is due to the fact that the total time to pay back the loan increased from the previous loans. This is mostly done to set a reasonable EMI, which does not take the whole salary of the person earning while also calculating the minimum amount of time one may require to pay back the collective loan.

Conclusion

Thus, if one has taken several loans together at the same time or within a period with little to no gap, it is financially better to combine the loans by taking a debt consolidation loan that pays for the previous loans and start anew with a fresh loan with lower interest and lowers EMI than the collective ones previously.