Pros and Cons Of Debt Consolidation Loans On An Individual’s Finances
Mounting debts from multiple sources can be one of the worst experiences for an individual. It can get in the way of one’s leading a financially balanced life. It also affects one’s CIBIL score adversely. A majority of borrowers may have to take multiple loans to meet the various planned and unplanned expenses. It can be in the form of medical debt, high credit card balance, home or business loan and a host of other debts.
It’s your financial obligation to repay any credit that you take. However, if you find it challenging to keep track of credits from various sources, you can consider a Personal Loan for debt consolidation from reputable NBFCs.
What is debt consolidation?
Most people find it easier when all their credits are clubbed together as one single consolidated debt. Such consolidation can facilitate a single point of repayment for the total credit line.
One of the primary ways to consolidate all your debts is to avail a debt consolidation loan. It merges all your existing debts together in the form of a single loan.
You have to make only one payment every month to settle this consolidated loan.
These loans can help to manage your finances better as you’ll find it easier to keep track of how much you spend on debt repayment easily.
There are a host of other benefits as well if you meet some simple debt consolidation loan eligibility criteria. You may find out the loan terms you are eligible for with the help of an eligibility calculator.
Debt consolidation loans: Pros
The biggest advantage of these loans is that it consolidates the total number debt accounts into a single account. There are numerous other advantages of these loans which prompt thousands of borrowers to opt for them.
You just need to know how to apply for a personal loan to consolidate your debts.
- Lower interest rates
Most financial institutions offer more feasible rates of interest on these loans. These low interest rate personal loans allow a borrower to pay a smaller amount as EMI as a whole in comparison to the sum total of their previous EMIs thereby reducing their financial liabilities.
Most financial institutions offer even more affordable interest rates if you link your account to debit the amount directly from your bank account.
Apart from the lower interest rates, many leading financial institutions extend some additional beneficial features if you meet their personal loan eligibility criteria successfully.
It may help you to avail the loan faster and benefit from more attractive terms.
- Longer tenors
Debt consolidation loans usually have a long tenor which reduces the financial burden of the borrowers. It allows them more time to pay back what they owe.
- Helps improve credit score
Individuals who do not know how to improve CIBIL score even with multiple loans will find a consolidation loan to be advantageous.
Your CIBIL score depends on the timely repayment of EMIs. Individuals with multiple EMIs are often unable to meet them together because they are spread across multiple accounts.
Borrowers are much more successful at paying a single EMI for their total consolidated debt. Hence, it will have a positive effect on their CIBIL score.
Debt consolidation loans: Cons
There are some cons of these loans which you should take into consideration if you plan to avail a debt consolidation loan.
- You have to stop using your credit card if you include it in your debt consolidation package. Some lenders may also ask you to forfeit the card altogether as a pre-requisite to avail the loan.
- Most lenders do not offer debt consolidation options for secured loans. You cannot include your car loan or home loan into this fold. It only applies to unsecured debts like credit cards, personal loans and medical debts.
- Although the interest rates on personal loans for debt consolidation are relatively low, you may end up paying more in total interest than you had to pay originally. That’s because the tenors of these loans are usually quite long. Whether that’s a disadvantage or not depends on your current financial situation because longer tenors also mean that you have to pay less on monthly EMIs.
Most finance pundits consider a debt consolidation loan a great way to manage multiple debts. You may benefit from it, but you have to be careful of the pitfalls as well.
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Category: Loans
