Have you had enough of having to pay money to creditors? Loans are no longer only used to pay for expensive items like a home or a child’s education. Customers are taking out loans in huge numbers. Some want to cover lifestyle costs, and some want to pay for basic consumer goods. So, because EMIs are getting more expensive, there isn’t much money left over for emergency funds or other important financial goals.
Debt consolidation and its potential impact on EMI debt
What is debt consolidation?
Debating many financial duties into a single new loan is called debt consolidation. This new consolidated loan has more favourable terms, such as a reduced interest rate, a longer tenure, etc.
In this scenario, the funds obtained from the new loan are used to pay off the existing debts.
Consolidating debt can be a useful way to deal with various debts. The loans that can be merged include credit cards, student loans, and other such obligations.
Therefore, debt consolidation is linking many financial accounts into a single charge. This account is a merger of loans, making dealing with one’s debt burden much simpler.
Various Forms of Debt Consolidation
- Student loan consolidation:
Students who have taken out loans are often stressed about paying them back. Merging various student debts into one loan with a low interest rate can reduce stress and ease loan repayment. It is a good way to save money on EMI or interest. Borrowers with existing high-interest private student loans are the ones who can consider this option.
- Debt consolidation loans:
A loanee with many debts who wants to merge them into one large, easy-to-manage existing loan can apply for one of these. Most loan providers do not restrict how the money from the loan can be spent.
Therefore, you must use the loan profits to pay the outstanding balances on the credit cards and loans you want to merge. Also, you can start paying the new lender monthly for the loan term. If you seek a more easy way to make payments, think of this option.
- Equity loans on the home:
The equity that is built up in your property can be put to use through the use of a home equity loan, which is also commonly known as a second mortgage. Most home equity loans come with five- to thirty-year repayment terms.
Since your property is collateral for the existing loan, the interest rates on home equity loans will be far lower than those on credit cards and personal loans.
The issue is that if you do not repay the loan to the bank as agreed, the bank can seize your home. If you have a regular source of income and a good amount of home equity, you may be a good candidate for this type of loan.
- Credit cards:
Merging many credit cards into a single card changes the interest rate applied to the new card. It is by far the most popular method of consolidating financial obligations. Consider this option if you have the money to pay off your credit cards quickly.
Consolidating Debt: A Guide
- Obtain a pre-qualification.
You can check with many banks or lenders to see what they might offer you about your existing loan. You will not have to worry about your credit score going up or down just because you did so. After doing some quick research and making a list of loan programs, you can get prequalified by going to the websites of many banks or lenders.
- Compare various financing options.
When you have at least three different loan offers, you can compare them to choose the best one. You must keep in mind that a lower interest rate might not be the best value offer if the lender also charges you a lot in processing costs.
- Compile the required paperwork.
If you want your application to process quickly, be sure to have everything the lender might need before you submit it. Recent bank statements, pay stubs, or tax returns (if self-employed) are usually required. Also, you may have to upload these files to the online application portal.
- Make a proper application.
Always keep in mind to fill out the loan application completely. Double-check your data for typos to ensure it agrees with your submitted supporting paperwork. It is a good idea to be ready to answer questions about your employment, income, and related details, apart from the papers used to confirm your identity.
- Settle any outstanding debts.
- Debt consolidation can begin once you have been approved and have received the funds. Get in touch with your bank, creditors, and loan companies, or have the lender do it for you if that is an option they have.
If you have a good credit score and your spending is under control, you may be able to qualify for a low-interest rate through debt consolidation. Many banks and financial organisations in India offer personal loans for debt reduction. These loan companies have fair interest rates and very easy repayment plans that make it simple to pay back the money you borrow. A debt consolidation loan can make your money management easy and hassle-free. At Piramal Finance, we can help you get over any last worries you have about taking out a new personal loan.
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