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Personal Debt Consolidation Loan: Your choice for One installment instead of Many
The Concept of Personal Debt Consolidation Loan is 'to take one
loan to pay off several loans running simultaneously'.
In this
case, the amount of one loan is normally sufficient to clear off
all the other simultaneously running loans.
Why
Personal debt consolidation loan
In case of having several loans running simultaneously, the
different loans may have different monthly payment dates, which
keeps the borrower under pressure throughout the month. But in case
of a debt consolidation loan, it becomes quite easy to pay one
installment once a month. Next, the several individual loans become
costly in terms of interest charged whereas a personal loan for
debt consolidation comes at a lower interest rate.
So, the borrower
saves due to lower interest rate.
So, in simple terms, a debt consolidation loan simply transforms
a number of unsecured loans, like credit cards, into another
unsecured loan. However, most commonly, a personal debt
consolidation loan is lent as a secured loan, where in an asset is
provided as collateral, normally a home. In this case the home is
mortgaged.
Due to this collateral, personal debt consolidation
loans have cheaper interest rates, due to reduced risk for lender.
Then the total interest and the total cash payments towards the
debt is lower allowing the debt to be paid off sooner, incurring
less interest. It has been seen that borrowers of personal debt
consolidation loans are under credit card debts, who spend more
than their earning. If this habit continues, even a personal debt
consolidation loan cannot help after a certain extent.
A personal debt consolidation should be availed if someone is
paying, for example, credit card debt. Credit card debt carries a
much higher interest rate than even an unsecured loan from a bank.
Consumers in debt who own property such as a home or car may get a
lower rate through a secured loan using their property as
collateral. Then the total interest and the total cash payments
towards the debt is lower allowing the debt to be paid off sooner,
incurring less interest.
Therefore, to summarize the above, a
personal debt consolidation loan offers the following
advantages:
Reduce Monthly payments:
Improve Credit Record
Reduce the interest you pay
One payment instead of several monthly payments
Eligibility for a personal debt consolidation loan
A lender checks the profile of prospective borrower of debt
consolidation loan before paying him the loan amount. While
checking the profile, lender looks at various factors such as the
current amount of outstanding loans, credit history, source of
income etc. if the borrower has very bad credit history, lenders
consider only secured personal debt consolidation loans only to
reduce their risk of lending money to a person who has a record of
defaults in payments. In most of the case, borrowers use their home
as collateral.
Therefore, the key factors in evaluating a prospective borrower of
personal debt consolidation loans are:
Amount required
Credit History
Payment duration
Any collateral
Source of Income etc.
There are lenders who accept even unsecured personal loans but
in this case the loan amount remains quite low due to increased
risk for lenders.
To conclude, a personal debt consolidation loan is a type of loan
which is borrowed to pay off several other loans. In this case,
usually, interest rate is low, which reduces the cost of debt
consolidation loans compared to sum of several simultaneously
running loans.
Steve Clark can tell you how to look better, live better and
breathe better by giving you tips to improve your finances.He
writes on loans. His ideas can help you rejuvenate your money.To
find Personal loan UK,homeowner personal loan visit
.
ezpersonalloansuk.co.uk
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