Debt consolidation loan – What you need to know before applying for one?


Personal or business finance management is essential to stay away from debt. Business conditions and life are always not the same. There are business losses and emergencies, as well. Not everyone is prepared with significant savings to pay for emergencies. It is here that people have to take a loan. Once the crisis gets mitigated, the time to repay the loans arrives. Here most people and business owners face a challenging time. There are times when they can’t pay for their business debts and fall into the vicious debt circle with increased interest. There are times when business owners and individuals have to pay more while repaying than the actual amount borrowed. It is here debt consolidation loan comes to help.

An understanding of the debt consolidation loan

Are you in debt? If yes, chances are you have to make multiple payments in a month. You might also be receiving several calls from your creditors. And each might have various repayment interest rates, which can difficult for you to remember as well as pay. Debt consolidation brings ease and organization to the repayment process. Here a bank or financial institution consolidates all the loans and merges it into one significant amount. The bank or financial institution pays off the amount on your behalf. After that, they fix a monthly payment amount at a given interest rate that you need to pay at a specific date and time. You need to make sure that you don’t miss out on the payment date. That way you might incur a penalty or a fine. To know more about this, you can check out Credit Ninja

Things you need to consider

Opting in for a debt consolidation loan will not make life debt-free! It might make it less stressful and help you to manage your debts better. Sometimes, people are lost as they don’t consider the essential aspects before opting in for a debt consolidation loan. Some of the crucial factors that you should consider are as follows: 


  • It is a loan


Most people opt-in or a debt consolidation loan, thinking that it will make life easier by 360 degrees. It is here that they need to make the correct reality check. It means that a debt consolidation loan is ultimately a loan. It will not waive off all the debts or loan amount you have already incurred. At best, it helps to break down your monthly payments to a reasonable amount that you can pay off without any hassles. Akin to any other loans, you will have a rate of interest as well. The interest rate depends on the loan amount as well as your credit score and history. The bank or the financial organization also fixes a repayment term and duration based on regular payments. You mustn’t forget the monthly date when you need to make the loan payment. Else, it might come in the way of you becoming completely debt-free.


  • Know that the repayment time is longer


Don’t assume that just because you opted-in for a debt consolidation loan, you will repay all your debts within a short period.  If your debt amount is high, then the repaying the consolidation loan can take about anything between five and twenty-five years. There are various reasons for that. It is because several consolidation companies end up charging from business owners and individuals an increased upfront cost. They also levy a high-interest rate. Hence, the overall interest payable then gets added to the debt amount, extending the repayment period. So, you might have lesser monthly payments, but you might have to keep repaying for a long-time.


  • Pre-payment might cost you a fee


It is essential to maintain the repayment date and time. Sometimes, borrowers think paying off early might be beneficial for them. But this has cost them more. The debt consolidation companies charge a fee for repaying the loan earlier than the date mentioned. Hence, when you are opting in for this loan, get very clear about the terms and conditions related to pre-payment and its repercussions.


  • Make sure to look for other options


If you are already in debt, then you don’t need extra money added to you. That indicates, ideally, the new loan you are opting in for should have a lesser interest. The monthly bills should be less as compared to the total bill cost that you had consolidated. It means you should opt-in for the first option that you come across. You should browse through more banks and debt consolidation companies and check out what they have to offer. The reduced interest rate all through your repayment tenure is beneficial. It will help you to stay regular with your payments and ensure that you gradually come out of debt. 


  • Your debt doesn’t get substituted


You need to be very clear about this! Many people think a debt consolidation loan completely replaces the mortgage. That’s when they have unrealistic expectations. This loan blends all your debt in one amount. Even when you are making the monthly payments, you are clearing off your debt. Hence, you shouldn’t incur any extra fees or credit card debts while you are in the repayment tenure, assuming that there is no debt. Some individuals have done that and have been at a considerable loss and prolonged liability.

Debt consolidation has its set of benefits as well, that makes it a popular choice amongst business owners and individuals. It helps you keep off from the creditor calls and messages. You can make your monthly repayments and focus on a correct business plan to follow after you are debt-free. But if you miss one payment, you might have to face the trouble of constant creditor calls and messages again. You need to be aware of both the advantages and other essential factors about a debt consolidation loan. Only then can you make an informed decision. Take your time to understand your loan requirements and browse through various companies. Read the online reviews and then arrive at a decision. Choose the loan and debt consolidation company that works best for you.