In a bid to meet the emergency expenditure and day-to-day expenses, you frequently end up taking more than one loan. However, repaying all of those loans individually becomes a hassle eventually. There are too many repayment dates and details to keep in mind and abide by each month. Thus, a much easier solution to the issue is to simply apply for a debt consolidation loan. On that note, here are all the details you need to know about the said loan.
What exactly is debt consolidation?
Debt consolidation loans in India, as the name suggests, are the consolidation or combination of multiple debt obligations into one loan. Think of this as one debt to pay off, rather than multiple debts. You take a new loan that has several favourable terms, such as longer tenure and a lower interest rate. You use this amount to pay off the rest of the loans – be it students’ loans, payday loans, or credit card bills.
Thus, instead of writing multiple cheques to multiple creditors each month, you just write one cheque to one creditor. It simplifies the process of loan repayment and frees you from the huge debt burden.
How does debt consolidation loan work?
In the process of debt consolidation, you use a different type of financing to completely pay off other liabilities and debts. When you have multiple debts to deal with, simply apply for one loan that consolidates all such debts into one liability and pays that off. Then onwards, you will be paying on your new debt until it gets completely paid off.
The important thing to remember here is that debt consolidation will not increase the amount of money that you owe. It’s just a new loan that you will use to repay all other loans.
You can apply for a debt consolidation loan online through credit card companies, banks, or credit unions. If you have a good relationship with your bank, it will be easier for you to get a loan from them. If that is not an option, consider private lenders, a mortgage company, or a non-banking financial institution.
You might even find specialized debt consolidation companies in India that focus only on debt consolidation loans. Lenders are keener to offer these kinds of loans because there is a higher chance that the debtor is going to return the money in full.
Major advantages of a debt consolidation loan
There is more than one reason why these loans are so popular among borrowers. So, let’s look at all the advantages of getting a debt consolidation loan:
Making repayments easier
The most important advantage is definitely the convenience of making just one EMI payment every month. When you have multiple loans and you fail to make the payment on any one of them for even a month, you are charged a hefty penalty. Consolidation of debts eliminates this problem by letting you focus on just a single EMI each month.
Lower rate of interest
Debt consolidation loans are also preferred because they typically have a lower interest rate compared to other types of loans. In fact, you can negotiate and get an even lower interest rate than the one quoted by the creditor, if you have a good credit score.
Flexibility of repayments
Most lenders let you have the liberty to decide on the repayment terms. So, you can either choose to repay the amount in a couple of months or years, based on your convenience. The flexibility of repayment terms is another major draw for a debt consolidation loan.
Improved credit scores
Multiple loans make your credit scores take a hit. And if you miss even one payment on one of those loans, your credit scores plummet even further. Thus, it is better to just take one new loan to pay off all the previous debts. It will improve your credit scores and make it easier for you to get future loans.
So, if the debt consolidation loan eligibility checker allows you, go ahead and take that loan.
Is it a good idea to consolidate bad credit?
If your credit score is somewhere around 620 or below, you have a situation of bad credit. You have probably been unable to make payments on one or two loans and landed in this scenario.
Now, it is better to avoid a debt consolidation loan for bad credit. The lenders see you as a risk and tend to charge a higher interest rate. Though you might find companies that are ready to offer you debt consolidation loans with low interest even with bad credit, it’s better to check their background before proceeding.
And that’s all! You can now go ahead and consider a suitable lender for your debt consolidation loan. You will certainly appreciate the convenience and affordability that comes with such loans.