The increasing costs of living and consumerism mean that people need to borrow money in order to fund their lifestyle. However, sometimes borrowing from just one person isn’t enough to cover the debts. Therefore, an individual might borrow money from multiple sources all at once, such as friends, family, banks and credit cards.
This can create a heavy financial burden, not to mention a lot of stress to ensure each creditor gets paid off! If you’re in a similar situation, debt consolidation is a perfect solution to get out of the hassle of repaying multiple creditors. We’ll discuss what debt consolidation is, and how it works below.
How Does Debt Consolidation Work?
Debt consolidation simply means merging the multiple outstanding debts owed to different lenders into one single debt to be paid to only one lender. For example, if you owe money on your credit card as well as to your friend, you can apply for a personal loan for debt consolidation in order to pay off your credit card and friend.
Essentially, debt consolidation loans are personal loans. One can go for debt consolidation for paying off any of their debts, be it for credit card payments, other loans (such as home loans, education loans, vehicle loans, etc.), or money borrowed from friends and family.
When a borrower takes out a loan for debt consolidation, they get one lump sum amount that can be used to clear out all their outstanding debts. With debt consolidation, instead of having to pay several creditors every month, you now only have to pay one single EMI every month to the lender. Using an instant loan calculator you’ll be able to determine your exact monthly EMI to be repaid
How to Get a Debt Consolidation Loan
There are two main types of debt consolidation loans, which are secured personal loans and unsecured personal loans. With both, there will be standard interest rates and processing fees as with any other personal loan.
Getting a secured loan for debt consolidation means that all of an individual’s unsecured debt can be merged into one secured loan. The borrower provides some of their assets as security collateral to the lender. This collateral can be property, gold, equity, insurance policies, etc. The advantage with a secured loan is that there will be a lower interest rate levied on the loan. If the loan has been availed against one’s real estate property, the borrower can be eligible for tax deductions.
The other type of personal loan that can be availed for debt consolidation is an unsecured loan. This is a far better and feasible option as most borrowers do not have collateral to pledge against a loan, or are unwilling to pledge collateral. While unsecured loans have slightly higher interest rates than secured loans, they have quick processing and disbursal speed. Additionally, the repayment tenures are quite flexible so they can bring down the monthly EMI you have to pay. Unsecured loans for debt consolidation are a great choice since they are easily available from banks and lenders; plus, they are quick and hassle-free.
Benefits of Personal Loan for Debt Consolidation
1. Only one repayment: Debt consolidation merges all your outstanding debts so that you only need to pay one lender every month, instead of several.
2. Simple application process: Since unsecured loans for debt consolidation have a digital process, all you need to do is download the lender’s app or visit their website to apply for your loan. No need to wait in banks and fill out lengthy paperwork!
3. Quick approval and disbursal: The TAT for unsecured personal loans is extremely fast. Your loan can be approved and disbursed in just 3 days or less!
4. Lower interest rate: Compared to other types of loans, debt consolidation loans can provide a much lower interest rate on your total outstanding amount, compared to interest levied on multiple loans.
5. Affordable monthly EMI: Using an instant personal loan calculator, you can adjust the repayment tenure to give you an affordable EMI that will easily fit in your budget and make your repayment easier.
6. Saves money: The low-interest rates and flexible repayment tenures of debt consolidation loans will save more money, versus paying multiple creditors every month.
7. Builds credit score: One of the best benefits of taking a loan for debt consolidation is that it can help fix bad credit and boost your credit score. Being able to pay your low monthly EMIs on time will increase your score and make you eligible for larger loans with lower interest rates in the future.
8. No collateral required
Having multiple debts can be very overwhelming, especially if it’s a large amount to be repaid. That’s why getting a debt consolidation loan is beneficial since it lowers your financial burden while simultaneously building up your credit score. To know what repayment tenure will give you a low monthly EMI amount, use a personal loan calculator.