What is the difference between a Debt Consolidation Program and a Revolving Loan?
There are a wide range of loan options that vary for different individual needs. Let’s figure which one is the best for you!
1. What is a Debt Consolidation Program?
When it comes to credit card bills, some of us may choose to only pay the minimum payment amount, with the minimum usually being 1-4% of the outstanding balance. When you only pay the minimum payment, interest will be charged on the remaining balance which can get as high as 30%.
Your credit card debt can begin to snowball when you only pay the minimum payment each month and as a result, you might find yourself in financial trouble with the amount of interest that builds up.
To help offset the high credit card interest rates, there is actually another option – with the new Debt Consolidation Program, you can take on relatively low-interest loans to pay off your credit card debt.
The Debt Consolidation Program is a simple repayment scheme that allows you to consolidate all your outstanding, unsecured debt from credit cards and personal loans into one easy monthly payment. You will save on interest, enjoy a reduced repayment amount, and a shortened repayment period.
2. What is the difference between a Debt Consolidation Program and a Personal Instalment Loan?
Loan Amount: With a Debt Consolidation Program you can borrow more at $1,200,000 or 18-21 times of monthly salary.
Repayment Period: A Debt Consolidation Program will allow for a 72 month repayment period, which is long than the standard Personal Instalment Loan.
Disbursement of Funds: For Debt Consolidation Programs, banks or financial lenders will arrange for direct payments to settle your credit card balances or loans, instead of adding credit to your bank account. The money will be paid through a cashier’s order or interbank fund transfer (CHATS). If the loan is disbursed by cashier’s order, you have to settle the previous loans by depositing the cashier’s order to the designated loan account with the relevant financial institution. If the loan is disbursed by CHATS, you may have to pay the handling fee.
3. What is a Revolving Loan?
A revolving loan has the following characteristics:
- No fixed monthly repayment amount or repayment period – you can either repay the borrowed amount in instalments or all at once
- A minimum monthly repayment amount is required and ranges from 1-3.5% of the loan
- Interest is on charged on the amount borrowed and is calculated on a daily basis
- The loan limit is reinstated the moment you repay the full borrowed amount, you can borrow again without re-applying
- Banks will regularly review your repayment record and may adjust the interest rate or loan limit accordingly
- In addition to interest, applicants of this loan have to pay an annual fee and withdrawal fee. The annual fee is approximately 1-1.5% of loan amount and the withdrawal fee approximately 2-3% of the transaction amount
4. What should I know before applying for a Revolving Loan?
Revolving Loans are often lower than other personal loans – some banks approve of loans that are 3-4 times of monthly salary with the the highest amount being 10-12 times of monthly salary.
Before apply for a loan, remember these points:
- Not every bank offers a Revolving Loan option
- There is no fixed repayment period so if you are not careful, you may end up overspending. Make sure that you at least pay back the minimum payment each month (similar to a credit card).
- The banks offer benefits such as waiving the handling fees but you should consider the annual percentage rate (APR) to understand the real cost of borrowing
5. How do I choose the right revolving loan?
Borrow only the amount you need, and avoid borrowing money from a number of different banks or financial lenders. Too much borrowing will result with a poor credit score.
Also be aware of the fact that paying for loan off early may not be the best way to avoid interest – some banks of financial lenders may actually charge you a fee for early settlement. For late repayment, additional interest at a fixed or prevailing rate will charged to you on a daily basis.