When it comes to debt consolidation and making high-interest payments for your credit card debt, credit card balance transfers and personal loans are two options you can use.
While both can help consolidate debts, a balance transfer and a personal loan, like most financial products, have their advantages and disadvantage that you need to keep in mind before you use them. (i.e., a balance transfer will have a 0% interest rate, but a short promotional period and a big processing fee, while a personal loan will have comparatively high-interest rates)
Considering that, it’s best to learn as much information before going unto using either for dealing with existing debt.
Balance Transfer vs. Personal Loan
|Balance Transfer Credit Cards||Personal Loans|
|Best for||Smaller debt that can be paid off completely in a shorter amount of time||Larger amounts of debt that may take years to pay off|
|Repayment terms||Pay the balance in full by the end of the introductory period to avoid accruing interest||Make fixed payments each month for the entirety of the loan|
|Approval requirements||Good to excellent credit score required||Good credit score preferred, but bad-credit loans are also available|
|Fees||Balance transfer fee: 3% to 5 percent of the amounts you transfer||Up to 10 percent of the total loan amount|
The key differences between balance transfer cards and personal loans depend on how large the remaining balance is in the debt you want to pay.
Balance transfer credit cards have features that make them ideal for addressing smaller loans quickly. This is especially good for credit card debts that can charge interest quickly.
Personal loans, on the other hand, can get you a larger loan amount, which helps you consolidate multiple debts and repay them over a long, fixed period.
Personal Loan (Debt Consolidation Loan)
A debt consolidation loan is an unsecured personal loan you can use to consolidate and repay your debts. Debt consolidation loans get you financing with a fixed interest rate, fixed monthly payment and fixed repayment period.
The complete transparency of the loan terms allows you to address your debt without any surprise, as well as plan for payments accordingly.
You can use a personal loan to consolidate debt by using the amount for all of your outstanding payments so that they’re all combined into a single loan. Debt consolidation loans usually have a lower interest rate than those of your other debts, so you get the chance to save money by paying off any high-interest debt.
- The personal loan interest rate will usually be competitive for the duration of the loan term.
- Fixed monthly payments and a fixed loan tenure make it easier for you to plan how much debt you need to pay off regularly.
- Repayment terms for personal loans can last quite some time, meaning you can make smaller monthly payments and a longer period to make sure you’re fully repaid.
- Other personal loans may charge an origination fee.
- You won’t get 0% APR like you would with a balance transfer card.
Top Personal Loan Rates in Singapore (2021)
|HSBC Personal Loan||3.4% (6.5% EIR)||Up to 3 Years|
|CitiBank Quick Cash Loan (New Loan Customers)||3.45% (6.5% EIR)||Up to 3 Years|
|CitiBank Quick Cash Loan (Existing Customers)||4.55% (8.5% EIR)||Up to 3 Years|
|UOB Personal Loan||3.4% (6.42% EIR)||Up to 3 Years|
|OCBC Personal Loan||5.43% (11.47% EIR)||Up to 3 Years|
|DBS Personal Loan||3.88% (7.9% EIR)||Up to 3 Years|
Unlike a personal loan, a balance transfer credit card gives you an interest-free period for a given time. Essentially, you transfer debt from your credit card to a bank account that charges no interest for a given period giving you the chance to pay down your debt without any interest adding for the usual duration of 3 to 18 months.
During this time, you can choose to make a minimum payment of 1% to 3% of the outstanding amount per month, but at the end of the repayment period, you must pay the remaining of what you owe
This is a simple way to use your existing credit card to refinance for you to consolidate debts.
Balance transfer credit cards are a great way to consolidate debt and deal with them easily, but because of the higher interest rates, you must make sure to pay the loan early or before the period ends.
- Balance transfer cards have an interest-free period.
- With a balance transfer card, all your payments during the free period can go to paying off just the principal
- Depending on the bank account, some balance transfer cards may come with benefits like financial protection and other rewards.
- Most balance transfer credit cards with 0% APR balance transfer offers don’t charge an annual fee.
- The introductory period for balance transfer offers eventually end.
- Any remaining debt after the introductory offer ends will begin accruing interest at the regular variable APR.
- The balance transfer processing fee typically ranges from 1% to 5% of your balance and are charged from the start.
- Without credit card discipline it may be hard for you to completely repay your debt.
Top Balance Transfer Rates in Singapore (2021):
|Bank||Balance Transfer Promotion||6-Month Balance Transfer||12-Month Balance Transfer|
|Standard Chartered||None||0% p.a. + 1.5% fee||0% p.a. + 4.5% fee|
|Citibank||0% p.a interest for 6 months with 1.58% service fee with Citibank Balance Transfer||0% p.a. + 1.58% fee (for new to bank customers)||0% p.a. + 5.5% fee|
|UOB||$80 to $160 cashback (depending on loan amount) when you apply for UOB Balance Transfer (12-month tenure) online.||0% p.a. + 2.5% fee||0% p.a. + 4.28% fee|
|OCBC||$80 to S$320 cashback (depending on loan amount) when you apply for Balance Transfer online||0% p.a. + 2.5% fee||4.98% p.a. + 0% fee|
|DBS||$150 to $500 cashback (depending on loan amount) for DBS Balance Transfer (12-month tenure) @ 4.5% administration fee via self-apply online application form||0% p.a. + 2.5% fee||0% p.a. + 4.5% fee|
|HSBC||None||0% p.a. + 2.5% fee||4.88% p.a. + 0% fee|
Factors to Consider When Choosing Between a Personal Loan and Balance Transfer for Debt Repayment
1. Interest Rates
Interest rates are the first thing to look at when comparing credit cards and debt consolidation loans. Balance transfer cards offer an interest-free period in the beginning, but the rates after it will be even higher than the interest rates on personal loans.
It’s important to keep the interest rate before and after that given period and work out your payment plan accordingly, to make sure that you can be debt-free by the time the interest-free period ends.
Personal loans, on the other hand, do not have a 0% APR version. With a healthy credit report, you can be offered very low-interest rates, but that’s about it. With good credit, you can find a personal loan with an interest rate as low as 1%, which is not a bad amount.
2. Processing Fees and Late Payment Fees
Many balance transfer card offers include a one-time processing fee, which can add up to about 1% to 5% of your balance.
If you’re considering a personal loan instead, you should know that some of them charge a loan origination fee — a one-time charge of no more than 10% is taken out of the total loan amount you receive.
Depending on the bank, the late payment fee typically ranges from $60 to $125 for persona loans and balance transfer credit cards. Be sure to make the minimum payments to avoid these high fees!
3. Fixed Rates and Payment Schedules
Personal loans are great for debt consolidation because, with predictable payments, a debt consolidation loan can help with budgeting. A balance transfer is more flexible than a personal loan because you can hold payments when you’re unable.
As you’re deciding how to consolidate debt, look at your situation to see which works best for you. If you need help with budgeting and want fixed payments, personal loans are a good option. If you’d prefer flexibility, a balance transfer credit card may be right for you.
You also only have to make the minimum payment monthly with a balance transfer. Unlike a personal loan, you can choose how much you want to pay each month as long as you are meeting the required minimum repayment sum each time.
4. Credit score impact
Transferring all of your credit card balances into the new account may push the utilization ratio on that card close to 100%, which could impact your credit score. Revolving debt will also affect your credit history negatively.
On the other hand, taking out a personal loan for debt could lower your utilization rate to 0% which will help your score. You wouldn’t be getting out of debt, but the credit-scoring models don’t see it that way, so your credit score could increase—as long as you are making on-time payments.
5. Credit requirements
Getting a balance transfer credit card, personal loan, and all financial products usually comes with a credit score review. People with low credit scores will likely not qualify for balance transfer credit cards or may have to put down cash for collateral.
For personal loans, you can still qualify for bad credit loans, but you must expect higher interest rates.
6. Types of debt (credit card debt, car loan, etc.)
While comparing debt consolidation loans and balance transfer credit cards, it helps to consider what kind of loans you have.
Generally speaking, debt consolidation loans are a good option if you have different types of debt to consolidate, like student loans, car loans, and more. This is because a debt consolidation personal loan gives you a lump sum that can be used to pay for anything like medical bills, credit card bills, and other personal expenses.
Meanwhile, balance transfer credit cards are best if you have only credit card debt. This is based on the fact that many balance transfer credit cards only let you consolidate other credit card balances. They can also be a good option for paying down small amounts of high-interest credit card debt due to their relatively short introductory periods.
7. Credit limit
The limit of your balance transfer is tied to the credit limit on your card or credit line account, while the maximum amount depends on your income.
How to apply?
1. Personal loan
- At least 18 years old
- Minimum monthly income of S$1,500 for citizens and permanent residents
- Minimum monthly income of S$2,000 for foreigners
For citizens and permanent residents:
- Proof of income and employment
- Proof of residence
- SingPass to log in to CPF, IRAS, and HDB websites
- Work permit
- Proof of residence
- Proof of employment
- Proof of income
2. Balance transfer
To apply for a balance transfer, you have to be:
- At least 21 years old
- Singapore citizen or Permanent Resident: minimum annual income of S$30,000
- Foreigner: minimum annual income of S$42,000. Some banks also require you to hold a Singapore Employment Pass.
- You might be required to own a credit card or bank account with the bank that you are applying for.
Do note that some balance transfers are only available to Singapore citizens or Singapore Permanent Residents, and these will only be available with banks.
Other Things to Consider
1. Is balance transfer considered a loan?
Yes, balance transfers are technically loans, and function not unlike most other loans. That said, balance transfers have a lot that separates them from regular loans.
2. Are balance transfers bad for my credit score?
Typically, a balance transfer credit card is not very good for your credit, as it may push the utilisation ratio to near 100%. Balance transfers are also revolving loans, which do not look good in the eyes of credit unions.
3. What’s the catch with balance transfers?
Balance transfers come with the possibility of paying much higher interest rates than you bargained for when you miss the interest-free period. They are also not advised to be used for bigger purchases and come with a large processing fee.
The Bottom Line
Personal loans or debt consolidation loans tend to work best for:
- People who need to pay down debts over a long period, or up to 10 years.
- Anyone who wants the security of a fixed interest rate and fixed monthly payment.
- People need to stop using credit cards due to the temptation they bring.
Balance transfer credit cards tend to work best for:
- Anyone who has a small amount of debt that they can completely pay off during their card’s 0% APR introductory period, which will likely last 12 to 20 months.
- People who have the discipline to stop using credit cards even after signing up for a new one.
If you can make the minimum monthly payments to pay your debt off before interest kicks in, then a balance transfer credit card could be right for you. If not, you may want to consider a personal loan. You may even consider using both.
While each option has its pros and cons, the best choice for your specific situation could be a mix of both. It’s important to always take a careful look at the state of your finances and find out exactly what you need before making a choice.
If you do decide to get personal loans, reach out to Loan Advisor. We are a loan comparison site that can look at your financial situation for you, and provide you with a list of packages from the top licensed moneylenders in Singapore.