If you are a regular costumer of banks and financial companies for loans (both secured and unsecured), if you have too many credit cards with growing balances and you are a frequent user of payday loans, it is highly likely that you may need credit management. Applying for consolidation loan could be a way to achieve that management.
How consolidation loans work?
Consolidation loans provide an option to get on top of your own finances and get rid of multiple liabilities running at the same time. The consolidation loan is not a new product, it is rediscovered in recent times by people having many outstanding debts. Debt consolidation is often sought as a relief for bad financial caused by multiple loans, high interest rates, different repayment conditions and all of those against one income.
How to apply?
Consolidation loans are usually easy to apply for. Some banks and other financial organizations offer certain relief programs if you are looking for a loan from them to cover your existing debts. For a start, it is best for you to put your obligations in order, meaning you should have an honest look at what you owe and under what terms and conditions.
You should make a list of all your due payments on monthly basis, your interest rate for every credit product you use, full amount for repayment, the discounts for early pay off. You would now exactly know the amount of your new desired loan should be. Presenting accurate information on your liabilities would only help your new potential lender to prepare the most suitable offer for you.
Your new terms and conditions matter
The purpose of debt consolidation is to combine all the installments under all your credit into one monthly installment, now payable to your new lender. Rates often depend on your credit background check and you would be usually offered a longer period for repayment. You should be searching the best possible rates tailored to your specific situation.
You should note that the cost for your lower monthly payment and longer payment plan (sometimes up to 5 years) is the increase of the overall period for you to be become a debt-free person. Moreover, the total cost you would be paying at the end would be a larger sum that you might have expected. Charges and fees that apply for this financial product should be also evaluated in advance to get a clear perspective as to what your new debt would look like.
Consolidation loans options
There are different options for consolidation, depending on what kinds of debts you intend to combine in one. If your liabilities consist of the usual credit cards, short term loans, payday loans, car loans and bad credit installment loans, you may qualify for the standard debt consolidation loans. Depending on the lender, conditions may vary, but one thing is a constant – the worse your credit score is (considering you have more bad credit installment loans or payday loans), the higher your interest rate would be and you are likely to be offered a longer period for the consolidation loan.
If you have more than one student loan taken to finance your education, you may easily qualify for a direct consolidation loan. This is a different type of debt consolidation. This is a special debt consolidation loan designed to combine two or more federal education loans into one.
This would allow the payment of one repayment installment per month. The debtor is released from charges and fees for application and utilization of the direct consolidation loan. It is important to note that private education debts are not considered eligible for direct consolidation. It is only intended to serve federal education loans.
Before turning your student loans into one new loan, you should be aware that any benefits available under your old arrangements (discounts, rebates, special options) would be lost.
Carefully review all the advantages and the disadvantages of consolidation. Because any sort of consolidation of your debts is just that – new structure, new term and new rates may apply, but it is still a debt.
Banks are more reluctant to provide special conditions for consolidation loans but some financial unions developed special products to meet the needs of clients in greater debt. Direct consolidation loans are structured in a more favorable way than the simple ones.
A serious commitment
Consolidation loans represent a serious commitment. If your credit score is already poor or your income is uncertain and you have no collateral, consolidating your debts may only be a temporary rescue. That may turn into a threat, considering the sum you would have to repay would be more. It is advisable to revise your expenses and receivables, prioritize your liabilities and decide which obligations you need to address first.
You should also have in mind that if your credit record is compromised, your options may be limited and you may find yourself offered not so preferable conditions. You should explore the possibilities with your new lender for re-negotiation of the consolidation debt, what prolong terms could be offered or what are the discounts should you repay in full prematurely.