For many reasons, we have to take loans from banks and other sources. Sometimes, this tough situation forces us to apply for more than one loan at a time. After that, we are obligated to repay loans within the period determined by the source. And, it may be difficult to manage repayment to different lenders if you have taken more than one loan. But, what if all the loans are combined into a single payment? Will it provide some relief from paying to the different lenders? Arguably, Yes.
There is an easy way to combine all the loans. This process is called a Debt Consolidation. It makes the process of paying money to various lenders very easy.
To learn more about Debt Consolidation, please have take a look at the following:
What is a Debt Consolidation Loan?
A Debt Consolidation Loan is the process of taking a new loan to pay the outstanding amount of your various current loans. Multiple types of loans may include student loan, home loan, vehicle loan, personal loan, etc. If it’s difficult to manage all these loans, then a Debt Consolidation Loan is the best option to consolidate them into a single payment. It is always better to pay at only one bank rather than working with multiple banks.
How Does It Work?
To take a Debt Consolidation Loan or to modulate all the loans, you have two options.
1) Secured Debt Consolidation Loan
2) Unsecured Debt Consolidation Loan
Secured Debt Consolidation Loan:
A Secured Loan is a loan you can get with a low-interest rate as you take a loan against assets. Some examples of the assets pledged can be Home, Property, Car, Gold, and more. These forms of collateral are the best option that makes you eligible for a secured loan. If you fail to repay the secured loan, then the assets may be taken by the bank.
Unsecured Debt Consolidation Loan:
An Unsecured Loan has an interest rate quite higher than that of the secured loan. But, for this loan, you do not have to pledge any assets. To pay off an unsecured loan, peer two peer lending or P2P lending is used.
How to get a Debt Consolidation Loan?
Most of the major banks provide Debt Consolidation Loans. Also, many Financial Institutions and Non-Banking Financial Company also provide such loans. To apply for one, visit a branch near you, or you can even apply online. The rate of interest depends on your credit.
Advantages of Debt Consolidation Loan:
- Consecutive repayment of the loan also increases your credit score
- Well-formed way to manage various loans under only one loan
- Time-saving process as you has to pay at just one source rather than many sources
- Benefit of saving the money of interest on multiple sources
- Burden of several loans can easily be converted in only one loan
Disadvantages of Debt Consolidation Loan:
- It may become an extra burden if you do not have a stable income
- If you failed to repay the payment successively, it might damage your credit score
- In Secured Debt Consolidation Loan, you will have to put your assets at risk
Is it beneficial to take a Debt Consolidation Loan to reduce the loan burden?
Whether it’s a small loan or large loan, you must repay it. The same thing will also be applied even when you have taken one loan or various loans. So, the Debt Consolidation Loan will never reduce the burden of various loans. Instead of reducing the loan burden, it will just simplify the way of repaying the loan amount to only one bank or institution.
So, if you are ready to take the Debt Consolidation Loan just to lessen the burden, it will not help you. It will only provide an efficient way to repay the amount.