A debt consolidation loan can come in very handy, but for many consumers, these loans must be carefully examined before signing for all. Like all other financial instruments, this type of loan has its advantages and its disadvantages. Let’s look at a few of the more important issues regarding debt consolidation loans.
What is a debt consolidation?
A debt consolidation loan is the replacement of multiple loans with one loan. One of the benefits of debt loan is that the borrower often sees a lower monthly payment and a longer repayment period.
Here is a very simple example of how a loan consolidation could work:
Let’s assume you have three remaining loans. The monthly payments are: a $ 75 for the loan $ 100 for the second loan, and $ 125 for the third loan. On a monthly basis, you pay an amount of $ 300 to cover all bills.
Using a consolidation loan the new lender would take those bills for you and then bill you one bill each month. In this case, a monthly payment can be $ 200, which saves you $ 100 per month. Keep in mind that if you pay less per month you may also have to pay longer. In other words, it may take a little longer to pay off the full amount than it would if you continued to pay the three payments separately.
Other option for consolidation loans
When it comes to debt consolidation loans, consumers have many options and even some special options. Among the special options, there are programs for consolidating student loans. With the cost of higher education more expensive the vast majority of students require some form of financial support.
Student loans play a large part of that financing. As the costs rise, but most students and their families find they need more than a student loan to pay the bills. When these individual loans are added up on a monthly basis, they can become very expensive. Fortunately, there are many debt consolidation loan programs available for student loan repayments.
Using this type of loan
Consolidation of credit card debt is a popular reason for using this type of loan. Many consumers are getting into trouble with credit card bills that come in the house month after month. Through a loan consolidation, many credit card holders can reduce the amount of real money that must be sent each month. For some individuals and families, this is a very important benefit.
However, debt consolidation loans are some major drawbacks. They may be seen by some lenders as a warning that a potential borrower is in trouble. Another drawback is that some lenders debt consolidation will ask that you put up collateral before they grant the loan. Not all lenders will request this from you, but some may. Much of whether collateral will be required will depend on the number of outstanding loans as well as your own credit history.
Consumers can find a lot of solid information about the various debt consolidation loan programs available here by doing some internet research. Be sure to read the fine print before signing up for a program.