Get Control of Your Debt with a Debt Consolidation Loan

Get Control of Your Debt with a Debt Consolidation Loan

Imagine that you took out a small loan to buy household appliances in one bank, a loan to buy a new car in the second and used the mortgage loan program in the third. Approximately the same services (except for the mortgage) were used by your wife. The bottom line is obvious-five loans, five interest rates, five banks and five monthly payments that must be made in full compliance with the repayment scheme.

In such a situation, it is quite natural that the borrower will want to combine these loans into one and repay the debt in the nearest bank branch.

The most pleasant thing about this state of affairs is that such a combination of loans is really possible. Today, almost all banks have developments that allow them to “sell” or” buy” debtors of any other bank(s) and combine all loans into one. This procedure is called loan refinancing or loan consolidation. A few years ago, such services were used only by medium-sized and large enterprises, but today individual customers are also willing to combine several loans into one.

Of course, the procedure for consolidating loans is very difficult and its implementation requires considerable labor from the bank’s specialists, which in turn affects the cost of the service. However, the time saved on independent settlements and trips to various banks fully compensates for the cost of obtaining such a loan. Consolidating debt with a discover card balance transfer allows you to manage your debt easily.

It should be noted that consolidation loans are not a panacea, moreover: they should be used very carefully. By buying your debts and adding them up, the lender bank adds up the risks that need to be compensated. Such compensation is fraught with the introduction of collateral and an increase in the amount of debt, and in the event that one of the loans is already secured (mortgage or car loan), the pledge applies to the entire amount. However, the reverse side of the situation may be a slight reduction in the interest rate on particularly expensive items combined with less expensive ones. This, in turn, increases the attractiveness of a debt consolidated loan for those who can guarantee the return of large amounts.

Pros of a debt consolidation loan

  • Ability to pay one debt instead of several ones. Accordingly, several monthly payments with different amounts and dates are replaced by one. If the customer does not pay through online methods, then he or she will have to visit one bank office (or ATM) instead of several ones. Of course, this is convenient;
  • This is also an advantage for the bank. A significant part of the overdue debt with a short payment delay period occurs due to the client’s absent-mindedness and forgetfulness. And if it is easier for the client to control one payment than five, then the probability of timely payment of each next payment increases;
  • Possibility to change the loan term. If the financial burden is too heavy, one way to manage it is to increase the repayment period. This allows you to reduce the size of each payment. However, the term extension is accompanied by an increase in the total overpayment in favor of the bank. But it is easier to pay a smaller amount. In any case, this issue needs to be carefully considered and calculated before making a new contract;
  • The possibility of reducing overpayments by cutting down the loan price. As a rule, the combined loan rate is lower. In addition, if the loan had other additional payments in favor of the bank in addition to interest, they can also be canceled. For example, you received funds transferred into your bank card. This, by the way, is the most expensive loan option. In addition to interest, it may include a service fee, SMS banking, etc.

Cons of a debt consolidation loan

  • In order for debt consolidation to be really profitable, you need to be able to calculate all possible options and take into account all the nuances. As practice shows, not all ordinary people do this. Some people” take the bank’s word for it”. Others just don’t know how to count;
  • Before approving a new loan, the bank carefully examines the borrower. It is quite possible that the bank will refuse the client if at least one of the available loans had overdue payments. Well, only a borrower with a good credit history get a low interest loan;
  • The bank will not give cash to the client but will transfer it to the creditors ‘ account to repay previous debts. This feature is attributed to the disadvantages since the client does not receive money personally. But in fact, this is more of a plus than a minus. After all, if the money is given to the client, he or she may not bring it to the bank and not pay off previous debts. This will increase the debt burden and worsen the situation;
  • The need to negotiate with previous creditors and provide relevant documents.
  • In some cases, you will have to pay a fine for early loan repayment;
  • The need to spend additional time and money associated with the collection of documents for a new loan.

Algorithm of actions

  • Study the loan offers of various banks, choose the best option;
  • To make a final decision, make a calculation. Make sure that combining loans will not only make life easier but will also be cost-effective;
  • Collect documents. In addition to the standard documents, you will need documents for loans that are subject to consolidation. The list of documents is specified in the bank;
  • Submit an application to the selected bank and submit the documents;
  • Sign a loan agreement;
  • Pay one loan instead of several.

Reasons for loan rejection

The bank does not specify the reason why your loan application was declined. But in most cases, the reasons are the same as in other loans. If the borrower “fits” the basic bank’s requirements (age, experience, residence, etc.), then the main reasons for refusal may be:

  • Lack of income;
  • Bad credit history;
  • Special information received by the bank upon request from the relevant authorities. For example, about cases of fraud;
  • False information about the amount of debts owed to other banks;
  • The presence of overdue payments on combined loans.

In most cases, debt consolidation loans are profitable and convenient, but you should properly weigh and calculate everything before signing a contra

Category: General

Tags: credit, debt consolidation loan, loans