A personal loan that helps you consolidate several high-interest loans into a new loan with lower personal loan interest rates is a debt consolidation loan. Managed well, this loan can help you save money on interest and finally get out of debt more quickly. You can apply for a loan for the outstanding amount on your existing debts and loans using a debt consolidation loan. You will collect the loan funds and use them to pay your outstanding debt after your loan application has been approved.
Eligibility and application procedure
For prospective borrowers, all borrowers have their own personal loan eligibility criteria. A credit score in the mid-600s is a standard criterion, although some lenders might also be looking for a minimum annual income and a low debt-to-income ratio. You may be able to find a lender willing to extend the loan despite a poor credit score, but you will be offered higher interest rates.
Depending on your lender’s terms, you can apply online or offline for a personal loan for debt consolidation. It normally takes a matter of minutes to apply online. For offline applications, some lenders give you the option to do so by giving them a missed call or sending an SMS. A representative will reach out to you and direct you to the steps you need to take.
Things to keep in mind before applying for a debt consolidation loan
Before you apply for a debt consolidation loan, you should check your credit report and scores and dispute and credit reporting error that comes to your notice. Your credit score has a significant impact on whether your loan application is approved and the loan’s interest rates.
Be well aware of your budget constraints and determine how much you can pay each month. Factor in the amount you have paid every month on your current loans, as your target will presumably be to replace those monthly payments with a new one. Once you know your credit condition and how much money you hope to borrow, do thorough research to find lenders that are best suited to your requirements and constraints. The factors you might want to consider are:
- Loan APR
- The fees involved
- Loan amounts offered
- Repayment terms
- Additional benefits
Why should you apply for a debt consolidation loan?
You could be considering debt consolidation loans to ease your situation if your overall loan and credit card debt are getting out of hand and questioning whether it is a reasonable idea. A debt consolidation loan is a good idea because-
1. Helps you save
If you have several double-digit interest rate credit cards and you apply for a lower rate personal loan for debt consolidation, you can save a considerable amount of money in interest and fees that you might be paying.
2. It makes managing your finances simpler
Personal loans for debt consolidation combine multiple loans into one monthly payment. There are adjustable rates and a fixed maturity period for the loans, but the monthly costs remain the same, and you know when the debt will be paid off.
3. No collateral is required.
Like any other personal loan, debt consolidation loans are usually unsecured loans and do not require collateral.
4. It can boost your credit score.
By using a debt consolidation loan to pay off your debts, there is a possibility that you will lower your credit utilization rate and increase your credit score consequently.
While consolidating debt, it is crucial to choose a strategy that makes repayment efficient and convenient. A common pitfall to avoid when repaying debt is taking several loans to do so. If you choose this route, you could end up in a debt routine that’s hard to break away from. A personal loan for debt consolidation is a perfect fit in this situation. Personal loan interest rates are low, which means that repaying the loan will not be a hassle once you clear your debt.