Stuck Paying Multiple High-cost Small Loans? Replace Them With A Single Loan & Lower Your Debt Burden!
One question that many loan borrowers ask themselves is “If I have multiple high-cost loans, can I combine the loans into one large low-cost loan?” Replacing several loans with a single large loan can bring a borrower to the right financial track and help him/her in figuring out the best way to pay off debt.
The answer to this is, yes, you can combine multiple loans into one single loan. Having a single monthly payment to take care of can make a lot of difference as far as budgeting is concerned. Additionally, you can also save money by getting a new loan at a lower interest rate.
If you have multiple high-cost small loans, here’s how you can replace them with one big low-cost loan by using the debt consolidation approach.
What is debt consolidation?
Instead of struggling with multiple debts and being unsure about options, it makes sense to consider debt consolidation. Debt consolidation is about combining multiple small loans into one bigger loan from a single lender at a lower interest rate. The big loan essentially pays off all your small individual loans, so that you only have to make one monthly payment in the future.
Debt consolidation may also provide alternative repayment plans allowing your monthly bill to be more affordable.
How does debt consolidation loan work?
You can consolidate multiple loans using a new secured loan or an unsecured loan, depending on which one provides lower interest rates. If using a secured consolidation loan, you will get a low interest rate since you will be required to pledge your assets to get a loan. A loan against a house, car, gold, insurance policy, etc. is one of the options that can be used to get a secured debt consolidation loan. While your collateral can be at risk if you fail to make timely loan repayments, it can benefit you by fetching far lower interest rates.
The interest rate on an unsecured debt consolidation loan is often higher as compared to secured loans. Since this is a collateral-free loan, there is no need to pledge your assets or property.
Features of Debt Consolidation
One of the main features of a debt consolidation loan is that there is a fixed interest rate on the new loan which allows predictable repayment amounts as compared to a variable interest rate that is applicable on credit card debt, for example.
In debt consolidation, all your existing small loans and debts get combined into one large loan with a lower interest rate. Making a single monthly EMI payment instead of multiple every month can help in easing your debt situation and making it more manageable. It could mean that the amount being paid towards loan repayment each month comes down to a manageable level.
Getting a lower monthly payment through debt consolidation has many positives, but you should note that it could also mean a longer debt period since all your loan obligations get rolled into one amount. The longer you remain in debt, the more you may end up paying to the lender through the life of the loan.
However, this alone shouldn’t be a deterrent as far as choosing debt consolidation is concerned. You must determine if it’s the right solution for you depending on your debt situation. Many loan borrowers find this solution ideal for their current needs and help them in taking a step in the right direction.
Also Read: Debt consolidation or balance transfer? Which is the right option?
How to apply for a debt consolidation loan?
Most of the banks and NBFCs provide debt consolidation loans to loan borrowers. You can apply for these online or visit the nearest bank branch to apply offline. It is important to have all the KYC documents for easy loan approval. The interest rate on the loan depends on individual creditworthiness, credit score, and overall credit history.
Advantages of Debt Consolidation Loan
Some of the noteworthy benefits that you can seek from debt consolidation are:
Things to Note in Debt Consolidation Loan
Here are some of the factors that you should keep in mind before seeking debt consolidation:
Additional Reading: Critical Factors to Consider before taking a Debt Consolidation Loan
Conclusion
Whether you use a single loan or multiple loans, it is always your responsibility to ensure a timely repayment. While a debt consolidation loan may not lower your financial burden, it simplifies the entire repaying process. If you do not have good credit and apply for a debt consolidation loan, you may have to bear the burden of a higher interest rate. Remember that debt consolidation helps you to reform your spending habits and easily manage your finances.
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