Debt Consolidation is the process of borrowing a single loan to pay off multiple loans. To consolidate your debt, you can avail of two different types of debt consolidation loans: secured and unsecured. Secured debt consolidation loans such as a Loan Against Property involve pledging a collateral whereas unsecured debt consolidation loans are sanctioned based solely on your credit score and income profile.
Benefits of Debt Consolidation Loan
Borrowers often ask why they should take a debt consolidation loan and combine all their loans into one. Let us look at the benefits of debt consolidation loans.
1. It is Far Easier to Manage a Single Loan than Multiple Loans
When you have multiple loans running at the same time, it may become difficult to keep track of all the EMIs. This often leads to missed payments, which in turn may draw late penalties. When you consolidate your debt, you do not have to remember multiple due dates. There is one EMI to be paid each month and only one payment due date that you must keep track of.
2. Secured Debt Consolidation Loans are Low-Interest Rate Loans
Compared to the rate of interest charged on credit card bills and personal loans, the interest charged on debt consolidation loans is quite low, if you have opted for a secured debt consolidation loan. Thus, when you combine all your debts into one, your overall EMI payment goes down due to the low-interest rate.
3. Longer Repayment Tenor
If you are availing of a secured debt consolidation loan, such as a Loan Against Property, to consolidate your debt, you will get the option to choose a long repayment tenor. This long tenor will enhance the manageability of the loan for you and allow you to repay the loan comfortably.
If you are planning to opt for a Loan Against Property for Debt Consolidation, it is recommended that you use a debt consolidation loan calculator.
Things to Keep in Mind While Opting for Debt Consolidation
If you are planning to go for debt consolidation, keep these four things in mind:
- Availing of a debt consolidation loan requires a borrower to pay an upfront debt consolidation fee. Talk to different lenders and negotiate for a low debt consolidation fee. This will help you save money in the long run.
- If you are applying for a debt consolidation loan, know that your lender will take some time to assess your application. They will check your creditworthiness by looking at your credit score and they will assess your income profile and job stability before deciding on your loan application. So, make sure to present yourself as a low-risk borrower through your application.
- If you are planning to take a debt consolidation loan to clear all your debt, make it a point to follow a disciplined repayment strategy. Skipping payments and going down the non-repayment path with a debt consolidation loan can lead to your CIBIL score going down considerably and your chances of getting another loan in the future becoming nil
*Terms and conditions apply.
Read Also: How to Pay off Your Debt with a Loan Against Property
