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Debt Consolidation Loan | Finance


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As the name implies, this is a loan obtained to consolidate all the other debts of a consumer. As consumers we obtain several loans for several purposes, may be a loan to purchase properties, get an overdraft facility or get a credit card debt. Copy the link given below and paste it in new browser window to get more information on Debt Consolidation Loan:-

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Debt Consolidation Loan | Finance

  1. 1. Debt Consolidation Loan
  2. 2. What is Debt Consolidation Loan? A Loan taken to Consolidate all Other Existing Debts of a borrower Problems with Multiple debts –  Different credit terms  Different repayment/ installment payment periods  Higher interest rates  Difficulty in managing number of loans
  3. 3. Ways of Consolidating Debts Getting a loan approved and settling all other dues using the amount obtained Getting the assistance of a Debt Management Agency where one monthly payment is done to the agency and they manage the individual creditors
  4. 4. Benefits of a Debt Consolidation Loan  Debt management process is made less complex  Savings in Interest costs  Longer repayment period  Lower monthly installment amount
  5. 5. Types of Debt Consolidation Loans Secured Loans:  Given on a Collateral  Lower Default risk for the lender  Higher Loan amount  Lower Interest rates  Longer Repayment period  Interest cost may be tax- deductible Unsecured Loans:  No requirement for a collateral  Higher Default risk for the lender  Lower Loan amount  Higher Interest rates  Shorter Repayment period  Interest cost may not be tax- deductible
  6. 6. Obtaining a Debt Consolidation Loan A Debt Consolidation Loan could be obtained through;  Banks  Finance companies  Debt Relief companies  Credit Unions  Online lenders Important considerations when obtaining a debt consolidation loan:  Amount  Repayment period  Interest rate  Other fees and charges involved  Availability of all relevant information  Regulation on the lender  Customer reviews
  7. 7. Determinants of Debt Consolidation Loan Rates  Credit Score: Credit worthy debtors get favorable credit terms  Collateral: Debtors prepared to provide a collateral get favorable credit terms
  8. 8. Debt Consolidation Loan for Bad Credit Effects of Bad Credit  Low credit score  Less accessibility to further borrowings  Higher interest rates  Unfavorable credit terms Strategies to obtain favorable terms in Debt Consolidation Loans  Giving a collateral  Getting assistance of co-signers  Seeking help of specialized lenders for bad credit  Finding a credit counselor
  9. 9. Deciding to Obtain a Debt Consolidation Loan  Remember! There are alternatives to obtaining a Debt Consolidation Loan. Choose what is right for you!  Do not fall into another debt in the process of attempting to get out of existing debt burden!  Be cautious about scammers!
  10. 10. Disadvantages of Obtaining a Debt Consolidation Loan  Another debt becomes the solution for the previous debts.  Due to longer repayment periods of the loan, debtors might end up paying higher interest in the whole process.  In a collateralized loan, debtor bears the risk of losing his asset in case of delays or non-payment of installments.
  11. 11. Debt Consolidation Loan Calculator Helps to calculate:  new installment amount from the new loan after consolidating debts and  savings in the process Calculations can be done by:  The customer representative of the lending institute.  By our own using online calculators taken from lender websites
  12. 12. Credit Card Consolidation What is it? Combining outstanding amounts of multiple credit cards together. How does it work?  Obtain a Balance Transfer Credit Card with 0% or lower interest rate  Pay off outstanding dues of existing cards using the new card Pitfalls:  Unless spending pattern is changed, this would become another debt  Interest benefit could be only for a limited period  Hidden/ Additional charges  Authenticity of the issuer Benefits:  Can avoid bad credit image  Cost savings from debt settlements during initial months  Need to manage only one credit card
  13. 13. Hey Friends, This was just a summary on Debt Consolidation Loan. For more detailed information on this topic, please type the link given below or copy it from the description of this PPT and open it in a new browser window. consolidation-loan.aspx