Whether you are about to run out of savings or willing to manage your debt efficiently, a debt consolidation loan acts as a saviour when you have multiple loans at hand. Though there are no such loans in the market as the titular financial product suggests, you can opt for a single secured or unsecured loan to dissolve all your liabilities and consumer debt.
However, while deciding which type of loan would fetch you the maximum benefit, you must remember secured loans for debt consolidation mandates borrowers to pledge collateral, which individuals can avoid in case of unsecured options like personal loans. Continue reading to know how personal loans can become an ideal tool for debt consolidation.
Features and benefits of personal loan for debt consolidation
- No collateral
To avail a personal loan for debt consolidation, individuals need not pledge any collateral.
- Instant approval
Financial institutions offer instant approval of a personal loan for debt consolidation once they verify the documents and applicant’s credentials.
- Competitive interest rates
The basic fundamental of availing a debt consolidation loan is to reduce the cost of borrowing. Hence, these loans come with an attractive interest rate that helps borrowers repay without any hassle.
- Quick disbursal
Personal loan for debt consolidation guarantees quick disbursal. Lenders instantly transfer the loan amount to a borrower’s account after they finish the loan verification process.
- High credit limit
Personal loan for debt consolidation enables borrowers to secure a high amount to efficiently pay off their liabilities. Renowned financial institutions like Bajaj Finserv offers personal loan up to Rs.25 lakh against minimal documentation.
These NBFCs also extend pre-approved offers to make the loan availing process hassle-free. These are available for various financing options like personal loans, business loans, and several others. Individuals can check their pre-approved offers by entering personal details like name and contact number.
Several NBFCs offer an overdraft facility through which borrowers can get access to instant funding whenever they need it and pay interest only on the utilised sum, not on the entire corpus sanctioned.
- Flexible tenor
One can obtain a personal loan against flexible tenor options. Applicants get to choose the tenor as per their suitability. By opting for a longer tenor, they can reduce their EMI burden and repay conveniently.
The fundamentals of a debt consolidation loan
You can take a single personal loan of a sizeable amount to pay off existing debts and incur a single monthly instalment for the new credit.
Usually, individuals combine their debt and repay it with a personal loan to enjoy a reduced interest outgo than all existing interest payments clubbed together.
The process, thus, lowers the monthly payment amount and helps streamline the process as individuals need not worry or keep track of multiple dues. An example will allow borrowers to grasp the concept easily.
Suppose you have a total loan obligation of Rs.350,000, which includes a 2-year student loan of Rs.2,00,000 and two credit card debts of Rs.1,00,000 and Rs.50,000, respectively. In all three cases, you have to bear additional interest payments. Therefore, instead of repaying Rs.2,00,000. Rs.1,00,000, and Rs.50,000 partly, and incurring monthly interests separately, you can consolidate the debt by availing a single personal loan of Rs.3.5 lakh to streamline the process.
Debt consolidation loan, i.e. personal loan for debt consolidation, is an effective method to manage various loans and debt. However, one must be careful in selecting lenders and ensure the new loan has the potential and structure to lower the EMI burden and the total cost of borrowing.