Debt Repayment Schemes vs Personal Loans: Rates & Requirements
There are a myriad of choices to manage your debt here in Singapore and personal loans is considered the more commonly heard of option which many of us have considered before or are already taking on one. However, when you run into a situation when you may not be able to take on a personal loan, there are other options like debt repayment schemes that may help get you out of a financial rut.
Key Differences Between Debt Repayment Schemes and Personal Loans
Most personal loans and debt repayment schemes are advertised to give you quick cash, but how do you differentiate between the two, and which one is more suitable for your situation?
Here’s a quick look at the key differences between the two to help you make a better decision:
Comparison of Debt Repayment Schemes vs Personal Loans
| Personal Loan | Debt Repayment Schemes | |
|---|---|---|
| Application options | Personal LoanVia the preferred bank, agents or finance platforms | Debt Repayment SchemesCannot apply on your own, require the court to refer |
| Repayment and loan terms | Personal LoanFixed monthly repayment amount for up to 7 years | Debt Repayment SchemesNegotiable monthly repayment amount for up to 5 years |
| Interest rates | Personal LoanFixed, between 3.7% to 4.5% | Debt Repayment SchemesNegotiable and tailored to the debtor’s financial capability |
| Processing fees | Personal LoanOne-time origination fee, between 1% to 6% | Debt Repayment SchemesFees consist of preliminary administration fee, review of suitability fee by the OA, DRP modification fee, annual administration fees, collection fee by the OA, distribution fee by the OA, which amount to a total of about $700 to $1,000 or more, depending on the need to modify a Debt Repayment Plan (DRP) that is part of the Debt Repayment Scheme. |
| Early repayment penalty | Personal LoanYes | Debt Repayment SchemesNone |
How Do I Qualify For A Debt Repayment Scheme?
If you’re nearing a pre-bankruptcy state in terms of your financial position and get rejected by banks for personal loans applications, this is when debt repayment schemes come into the picture.
A Debt Repayment Scheme (DRS) is considered a pre-bankruptcy scheme administered by the Official Assignee (OA) from the Ministry of Law’s Insolvency Office. With DRS, you may be able to avoid bankruptcy, along with its financial restrictions, and unlike bankruptcy, you will not have to abide by any travel restrictions, and still be able to have the choice of repaying your debts over a fixed period that is often about 5 years, and can maintain a regular savings account.
To qualify for a DRS, you’ll need to fulfil the following criteria:
To qualify for a DRS, you’ll need to fulfil the following criteria:
- Total liabilities do not exceed $150,000;
- To be employed and earning a regular income;
- To not be bankrupt or placed on the DRS in the recent past 5 years;
- To not be subject to a court-based arrangement over the past 5 years
- To not be a sole-proprietor or partner in any organisation
Frequently Asked Questions
Where can I apply for a DRS?
- You are not able to apply for a DRS as it is unlike a personal loan which you can sign up for. You can only be considered for the DRS if you file for a bankruptcy or if your creditors start bankruptcy proceedings against you.
Will I need to pay for any fees if I am eligible and considered for the DRS?
- Yes. There are various fees that are payable including the Preliminary administration fee of $350, the OA’s review of DRS suitability fee of $250, the DRP Modification fee of $50, the Appeal fee of $100, Annual administration fees that range from $300 to $350, and more which you can find out on our DRS page.
What is the eligibility criteria for a DRS?
- To be eligible for a DRS, your total unsecured debt needs to be up to S$100,000, you’ll have to be employed and earning a regular salary, and not be bankrupt or placed on the DRS in the recent past 5 years, or be subject to a court-based arrangement over the past 5 years, or be a sole-proprietor or partner in any organisation.
How do I get the best personal loan?
By comparing the best rates available, you’ll be able to find one that suits you the best. There is really no “best personal loan” as it depends on one’s financial situation; and it differs from person to person.
Currently, Standard Chartered, UOB, Citibank, and DBS are offering the more attractive interest rates and personal loan promotions in Singapore. To make a better decision, you can compare them based on loan repayment tenures, effective interest rates (EIR) and minimum annual income requirement with MoneySmart's comparison tool.