refers to the borrowing of a single loan from a financial institution in order to repay other loans. Institutions which offer debt consolidation are the banks, Caisses populaires, and the credit unions, among others. As a rule, the borrower pays one outstanding loan at a lower rate than the rate charged by his or her creditors. This option is especially relevant for individuals who have borrowed loans at comparatively high interest rates. In addition, the financing institution may offer extended terms and help individuals to reduce the amount of the monthly payments. Additional advantage represents the fact that the borrowers will take care of a single payment rather than multiple repayments to different institutions. This will facilitate the monthly household budgeting. Furthermore, debt consolidation helps to eliminate the accumulated credit card debt
. On the other hand, if borrowers continue to use their credit cards, they will accumulate additional debt
. Some institutions will require the closure of any credit cards, store, and business accounts in order to prevent the further accumulation of credit. Another issue is that the financing institutions may be less flexible than the creditors. Therefore, they may be less willing to accept late payments.
Borrowers must apply for a consolidation loan that equals the amount of their outstanding loans. They will not pay any application fees. However, the lending institution may charge a certain amount while opening a file for the borrower. It is best to review the conditions of several financial institutions as the interest rates may vary. In general, financing companies offer higher interest rates in comparison to the banks. Borrowers are advised to examine all terms and conditions such as loan period, interest rates, and fees, among others.
Some experts advise to check with up to three institutions because a high number of requests for information may have a negative impact on the credit score of the borrower. Several conditions must be met in order to receive a debt consolidation loans
. Firstly, the financial institution will request a copy of the borrower’s monthly budget. The aim is to determine whether the applicant can service the loan. Secondly, individuals should have a regular job or another source of income that will adequately cover the payments. They must have an acceptable credit card rating as a proof of their adequate financial situation. Borrowers will be asked to present their most recent pay checks and a copy of their last year’s tax return. The financing institution may also ask for a co-signor or collateral in order to meet the requirements. Once the debt consolidation loan
has been granted, the financial institution will cover all outstanding debts of the borrower.
It is a good idea to compile a list of all outstanding loans in order to determine the amount of the total sum that is due. The loan officer of the lending institution will have an access to the whole information; so, it is best if the borrower offers precise information. This will add to his or her credibility.
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