3 Debt Management Products: Which Should You Consider?

3 Debt Management Products: Which Should You Consider?

 

 

This article is sponsored by Standard Chartered Bank (Singapore) Limited (“SCBSL”). All information provided is for informational purposes only and is not intended to be advice or an offer for any product or service. SCBSL is not liable for any informational errors, incompleteness, delays, or for any actions taken in reliance on information contained herein.

If you’ve been on the lookout for something to help you with your financing needs, you may have found yourself flummoxed by the range of financial products out there.

In particular, you may be confused about the differences between a personal loan, a balance transfer and a debt consolidation plan – three popular products in Singapore that can help you with your financing needs.

Not to worry. These questions can help you to better decide on which product to go with:

How soon can I afford to pay off my loan?

Personal loans and debt consolidation plans (DCPs) generally offer loan tenures up to a few years. In contrast, a balance transfer allows you to pay back your loans at a promotional interest rate of 0% p.a. (this rate excludes the loan’s one-time processing fee) in the first 3 to 12 months. However, after this period elapses, you will have to pay off your loans at prevailing credit card interest rates, which could be around 24% p.a.

As such, a balance transfer may be a cost-effective option if you can afford to repay your loans in a short period of time. However, if you need to spread out your repayments over a longer period of time, you may save on interest charges by opting for a personal loan or a DCP.

Loan tenure
Personal loanBalance transferDebt consolidation plan
1 – 5 years3 – 12 months1 – 10 years
Note: The above information used for comparison are obtained from public sources and does not serve as a representation of any financial institution.

What kind of financing needs do I have?

A personal loan offers flexibility in terms of what you can use the borrowed funds for. With Standard Chartered’s CashOne Personal Loan, you can take a loan to finance needs that you do not currently have sufficient cash for. With a loan approval as soon as the next working day^, it is also a good option for paying off large expenses. You can also use it to pay off high-interest and revolving debts if your personal loan offers a lower interest rate.

Similar to a personal loan, you can use a balance transfer to help finance your expenses. However, a balance transfer is best suited for short-term financial needs, as its promotional interest rate of 0% (this excludes the one-time processing fee) is usually only applicable for the first 3 to 12-month promotional period, after which you’ll be paying off your loan at the prevailing credit card interest rates. Hence, you may consider a balance transfer only when you can afford to repay your loan within the promotional 0% interest rate period.

If you’re straddled with high-interest debt, you can consider a DCP. It is useful for combining large debts (that exceed 12 times your monthly income) into a single loan, usually at a lower interest rate. However, unlike a personal loan or a balance transfer, you cannot take a DCP to finance non-debt related needs.

ProductBest for
Personal loanFinancing needs that you do not currently have funds for, sudden and large expenses, paying off high-interest debt
Balance transferFinancing short-term expenses
DCPConsolidating large amounts of high-interest debt by spreading the debt over a longer repayment period

What is my repayment scheme?

The repayment schemes under a personal loan and a DCP are fairly straightforward. You’ll need to repay a fixed amount each month throughout the tenure of the loan. Your monthly repayment amount will depend on your loan tenure, interest rate and loan amount.

On the other hand, a balance transfer does not have a fixed monthly repayment scheme. Instead, you are free to choose how much you would like to repay each month, as long as you meet the minimum monthly repayments, which can be 1% to 3% of your principal amount. However, you would probably need to pay more than the minimum sum every month to clear off your loan before the 0% p.a. promotional interest rate period ends. Any outstanding amount that is not paid off after the promotional period would be charged at higher interest rates, usually from 24% p.a. and above. In this sense, a balance transfer requires more financial discipline than a personal loan and a DCP as the onus of deciding how much to contribute to clearing off your debts every month falls on you.

In contrast, the simplicity of paying a fixed amount every month under a personal loan or DCP can make it easier for you to pay off your loan.

Repayment scheme
Personal loanBalance transferDCP
Fixed monthly amountMin payment of S$50

or

1% or 3% of principal plus interest, fees & charges (whichever is the higher amount)
Fixed monthly amount

What are the interest rates?

A balance transfer offers a promotional period – typically 3 months, 6 months or 12 months – in which you can pay your loan at a 0% applied interest rate. However, balance transfer programmes do charge a small one-time processing fee that could range from 1.38% p.a. to 5.50%, bringing the effective interest rates (EIR) from 2.96% p.a. to 7.87% p.a. for a loan amount of S$10,000. After this period elapses, you will have to pay your credit card balance at the prevailing interest rate, which could be around 24% p.a.

Personal loans and DCPs do not offer 0% p.a. interest rates, but they do usually offer fixed interests throughout the tenure of the loan. The interest rates of a personal loan range from 3.7% p.a. to 13.14% p.a. (EIR from 7% p.a. to 25.71% p.a.), while the interest rates of a DCP range from 3.98% p.a. to 6% p.a. (EIR from 7.23% p,a. to 10.46% p.a.).

 Personal loanBalance transferDCP
Interest rateFixed interest rate from 3.7% p.a. to 13.14% p.a. (EIR from 7% p.a. to 25.71% p.a.)0% p.a. (EIR from 2.96% p.a.) during the promotional period, 24% p.a. thereafterFixed interest rate from 3.98% p.a. to 6% p.a. (EIR from 7.23% p,a., to 10.46% p.a.)
Funds can be used forMedium to long-term financing needsShort-term financing needsConsolidating bigger amounts of high-interest debt
Monthly repaymentFixed monthly instalmentMin payment of S$50

or

1% or 3% of principal plus interest, fees & charges (whichever is the higher amount)
Fixed monthly instalment
Note: The above information used for comparison are obtained from public sources and does not serve as a representation of any financial institution.

What am I eligible for?

Finally, don’t overlook the eligibility requirements of each product.

Being eligible for a personal loan and a balance transfer is relatively straightforward. To be eligible for a DCP, however, you may need to owe a relatively large sum of debt. Generally, the requirements for each product are as follows:

General eligibility requirements#
Personal loanBalance transferDCP
- Aged 21 to 65

- Have a minimum annual income of S$30,000

- Be in good credit standing
- Aged 21 to 65

- Have an annual income of S$30,000 to S$120,000 (Singaporean citizen or permanent resident)

- Have total debts that exceed 12 times your monthly income
- Aged 21 to 65

- Have an annual income of S$30,000 to S$120,000 (Singaporean citizen or permanent resident)

- Have total debts that exceed 12 times your monthly income
#may differ from bank to bank

Finding the right plan for your needs

In short, if you are looking to manage debt, a balance transfer or a DCP may be a good solution. However, consider other factors – such as the loan tenure, interest rate and repayment scheme – before taking out a loan.

For other financing needs, or even to manage small amounts of debt, a personal loan can be a better option instead.

Looking for a personal loan? Apply now with Standard Chartered CashOne Personal Loan and enjoy exclusive rates from 4.98% p.a. (EIR from 9.29% p.a.*). 

^Standard Chartered Bank (Singapore) Limited’s Next Day Cash Terms and Conditions apply. For full Terms and Conditions, refer to https://www.sc.com/sg/terms-and-conditions/next-day-cash-terms-and-conditions.

*The EIR for the applied rate of 4.98% p.a. is calculated based on a loan amount of S$50,000 and takes into consideration the first year annual fee of S$199. Click here for the full CashOne Comparison Sites Campaign Terms and Conditions.

All Standard Chartered Bank CashOne Personal Loan applications are subject to SCBSL’s loan approval process at its sole discretion. For more information on the Standard Chartered CashOne Personal Loan, visit sc.com/sg/CashOne now.

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