Simply defined, Consolidation Loans is where a bank, credit union or finance company provides you with the money to pay off your outstanding loans and brings them all together into one big loan. It would be easy to track and control existing borrowing.
It is usually a desirable option when you are having trouble meeting your minimum monthly repayments. As a run to option, consolidation loans has several benefits as well as some qualification requirements which must be met to secure it.
What qualifies people for this loan consolidation?
If people are seeking to apply for a loan, much so consolidated loans, the following conditions must be met.
• A fairly high income. The creditor will assess if you are capable of paying the previous loan.
• A good payment record since the creditor will assess your payment history.
• The person’s overall financial stability. This is usually done by assessing the debt to income ratio. In most cases when your total monthly debt payments are more than 36% of your gross income, you may be denied the loan
• Your home equity. The lender/ creditor asks lots of questions to be sure that they will be paid back. In most cases, people are asked to sign over collateral in the form of a home, property, or vehicle.
In what forms can this loan be offered?
Consolidation loans, just like other personal loans, can take the following forms:
• Secured loan
A secured debt consolidation loan is where the person being lent money signs collateral and pledges her/her asset like a car to act as security to the lender. This type of loan adds additional fees which just increases the amount owed to the lender.
• Unsecured loan
An unsecured loan or which is also called personal loan is a loan that is issued by the borrower’s creditworthiness. A personal loan is approved without signing any type of collateral or use of property like a car or house.
Why consider consolidation loan as your priority?
Other than the obvious reason of helping you pay off your current debts, this loan is also associated with lower interest rates and a flexible monthly repayment schedule. It enables you to get a clear date that your borrowing will be paid off by. Additionally, unsecured loans do not require one to have collateral in the form of property like a car to secure it.
How to apply for consolidation loans?
The process is pretty simple and begins with identifying a potential lender and finding out their terms and conditions as well as their rates. Just like online loans, once you are satisfied that you have found the right one, one that meets your criteria, complete an online loan application form and submit for review. You may also apply via phone and through branches.