As the name implies, this is a loan obtained to consolidate all the other debts of a consumer. As consumers we obtain several loans for several purposes, may be a loan to purchase properties, get an overdraft facility or get a credit card debt. Copy the link given below and paste it in new browser window to get more information on Debt Consolidation Loan:- http://www.transtutors.com/homework-help/finance/debt-consolidation-loan.aspx
2. What is Debt Consolidation Loan?
A Loan taken to Consolidate all Other
Existing Debts of a borrower
Problems with Multiple debts –
Different credit terms
Different repayment/ installment
payment periods
Higher interest rates
Difficulty in managing number of loans
3. Ways of Consolidating Debts
Getting a loan approved
and settling all other dues
using the amount
obtained
Getting the assistance of a Debt
Management Agency where
one monthly payment is done
to the agency and they manage
the individual creditors
4. Benefits of a Debt Consolidation Loan
Debt management process is made less complex
Savings in Interest costs
Longer repayment period
Lower monthly installment amount
5. Types of Debt Consolidation Loans
Secured Loans:
Given on a Collateral
Lower Default risk for the lender
Higher Loan amount
Lower Interest rates
Longer Repayment period
Interest cost may be tax-
deductible
Unsecured Loans:
No requirement for a collateral
Higher Default risk for the lender
Lower Loan amount
Higher Interest rates
Shorter Repayment period
Interest cost may not be tax-
deductible
6. Obtaining a Debt Consolidation Loan
A Debt Consolidation Loan could
be obtained through;
Banks
Finance companies
Debt Relief companies
Credit Unions
Online lenders
Important considerations when obtaining a debt
consolidation loan:
Amount
Repayment period
Interest rate
Other fees and charges involved
Availability of all relevant information
Regulation on the lender
Customer reviews
7. Determinants of Debt Consolidation Loan
Rates
Credit Score:
Credit worthy debtors get favorable credit terms
Collateral:
Debtors prepared to provide a collateral get favorable credit terms
8. Debt Consolidation Loan for Bad Credit
Effects of Bad Credit
Low credit score
Less accessibility to further borrowings
Higher interest rates
Unfavorable credit terms
Strategies to obtain favorable terms in
Debt Consolidation Loans
Giving a collateral
Getting assistance of co-signers
Seeking help of specialized lenders for bad credit
Finding a credit counselor
9. Deciding to Obtain a Debt Consolidation Loan
Remember! There are alternatives to obtaining a Debt Consolidation Loan.
Choose what is right for you!
Do not fall into another debt in the process of attempting to get out of
existing debt burden!
Be cautious about scammers!
10. Disadvantages of Obtaining
a Debt Consolidation Loan
Another debt becomes the solution for the previous debts.
Due to longer repayment periods of the loan, debtors might end up
paying higher interest in the whole process.
In a collateralized loan, debtor bears the risk of losing his asset in case
of delays or non-payment of installments.
11. Debt Consolidation Loan Calculator
Helps to calculate:
new installment amount from the new
loan after consolidating debts and
savings in the process
Calculations can be done by:
The customer representative of the
lending institute.
By our own using online calculators
taken from lender websites
12. Credit Card Consolidation
What is it?
Combining outstanding amounts of
multiple credit cards together.
How does it work?
Obtain a Balance Transfer Credit Card
with 0% or lower interest rate
Pay off outstanding dues of existing
cards using the new card
Pitfalls:
Unless spending pattern is changed, this
would become another debt
Interest benefit could be only for a
limited period
Hidden/ Additional charges
Authenticity of the issuer
Benefits:
Can avoid bad credit image
Cost savings from debt
settlements during initial months
Need to manage only one
credit card
13. Hey Friends,
This was just a summary on Debt Consolidation Loan.
For more detailed information on this topic, please type the
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consolidation-loan.aspx