Debt consolidation is a type of debt refinancing strategy that works by replacing multiple unsecured debts with a new large loan, which usually has a more favourable repayment plan (lower monthly payment and interest rate). Oftentimes, applying for a debt consolidation loan can be beneficial on the part of the debtor because it can help save a great deal of money on late payments and high interest rates.
A Definitive Guide to Debt Consolidation Loans
Before you can qualify for a debt consolidation loan, your credit score should pass the bank’s minimum requirement. Additionally, you should have adequate income to pay for your consolidated loan. It is also highly essential not to have records of numerous late payments, as well as bad credit reports. You are also required to offer sufficient security for your loans.
A person has a bad credit history if his minimum monthly debt payments are quite high, even after factoring in of consolidated loans. Another reason why some people fail to qualify is that they are not able to provide valid security for their loan. Although there may be other solutions for people who failed to meet the qualifications, it can only make your current debt situation more complicated.
Consider the interest rates
When seeking help with debt consolidation loan, you should consider the interest rates for the particular loan. Banks and reputable credit unions will offer you the best rates. There are several factors that can help you get better rates of interest include credit score, individual net worth and good relationship with the particular financial institution.
Oftentimes, the financial institution will require you to submit good collateral such as new vehicle models, because they can be easily sold or liquidated if the debtor defaults payment. Banks usually charge an interest rate between 7% and 12%. On the other hand, if you seek a loan from a financial institution, the interest rate for secured loans is about 14% while over 30% is charged for unsecured loans. These are the factors that will be put into consideration when applying for a consolidated loan.
What’s great with debt consolidation loan is that you can put the money you saved every month in the bank. Instead of paying your monthly dues to credit card companies, why not take advantage of the extra cash by using or investing it on other important things to help build your future?
It is extremely essential to weigh the pros and cons of debt consolidation before making any final decision. Do you have tips on how to qualify for a debt consolidation loan? Do you have any experiences you want to share with us? Let us know in the comments!