Stuck between the repayment of several loans and the payment of bills, the borrower inevitably runs into financial difficulty, if he is not already a victim of it. There is less money to live on and there is no more money for other projects. The most constraining factor in this situation is the sanctions from unpaid creditors and the situation of over-indebtedness which constitute a constant threat to the debtor. Fortunately, there is a solution to overcome this impasse: the debt consolidation loan.
Debt consolidation in a nutshell
Debt consolidation consists of consolidating some or all of the loans that an individual has contracted under different conditions. In this operation, a credit institution then takes charge of paying its debts to the various creditors and transforms them into a single loan. For this single loan, there are therefore new terms and conditions that make it easier for the borrower to repay. Seen from another angle, taking out a debt consolidation loan consists of borrowing to pay off several outstanding loans. With this operation, the borrower will only have to worry about a single loan. He will only have to pay one monthly payment every month, which is lower than the sum of the monthly payments of the old loans
The debt consolidation loan is used to consolidate the various debts. Examples include consumer loans, credit cards, revolving credit, employer loans, bill debts, late rent payments, etc. The borrower also has the option of consolidating only pressing debts (imminent maturity) and/or more expensive debts. Be aware, however, that the real estate loan cannot be liquidated with this operation.
Why Opt for a debt consolidation loan?
Repayment of loans is mandatory, whether the debts are contracted with a private lender or with a financial institution. Non-repayment leads not only to forced execution resulting from legal action but also to penalties such as damages for default or increased interest. Forced repayment may involve the seizure and sale of the mortgaged or pledged assets. In the end, the defaulting borrower becomes more destitute than before.
It is to avoid all these disappointments that the debt consolidation loan was put in place. It makes it possible to easily repay loans thanks to the lower monthly payment amount and the longer repayment period. The borrower can repay his credit more serenely. This solution is to be considered when the borrower is in financial difficulty or when he seeks new financing such as a home loan. Indeed, with credit consolidation, the borrower returns to a normal debt ratio. The amount of debt to be repaid will no longer be excessive concerning income. In this way, the borrower’s repayment capacity increases and it is easier for him to lead a more manageable lifestyle
Debt consolidation is open to anyone who meets a few criteria required by banks and other lenders:
sufficient assets – he or she must have a property to be mortgaged or other collateral,
Proven creditworthiness – he must not have a history of late repayment,
Sufficient income – must justify the existence of a stable activity (high salaries and stable employment, etc.),
not too high outstanding debts – it is more suitable if its debt ratio does not exceed 33%.
What are the advantages of the debt consolidation loan?
The debt consolidation loan simplifies the management of the repayment of unpaid loans and invoices. Indeed, it is easier to repay a single loan with a more affordable monthly payment than several loans with different monthly payments and due dates. With this operation, the borrower knows how much he has to pay each month and until when he has to pay. With the fixed monthly payment, he can set up an adapted repayment plan. He is therefore able to prepare his monthly budget based on this. Extending the term allows for more time. But this longer debt term is not necessarily an advantage. What is certain is that the debtor will not face over-indebtedness or forced repayment in the immediate future. It is therefore up to the borrower to take steps to ensure that this does not happen. The wisest course of action would be to refrain from taking out large loans until the consolidation loan has been repaid in full
It should also be noted that banks and credit institutions offer a lower interest rate for the credit consolidation loan. This reduces the costs that the borrower has had to pay with very high-interest credit cards. However, if the repayment term is long enough, the cost may increase since interest increases as the number of maturities increases.
How do I get a debt consolidation loan?
It is worth mentioning that the debt consolidation loan is more difficult to obtain because banks are concerned that a borrower who is in debt may be insolvent. For this purpose, a very high total debt load can lead to a refusal by the lending institutions. To increase his or her chances, the borrower must continue to repay outstanding loans to improve his or her credit rating.
To build a credit consolidation file, one must contact the credit agencies or banks that offer this type of offer. These institutions will then examine the applicant’s profile: professional and personal situation, the state of the debts to be consolidated, the available guarantees, etc. To find an advantageous consolidation loan, it is advisable to send the application to several different institutions.
The loan application can also be made online. In this case, however, it is advisable to apply only to reputable institutions, otherwise, you may be swindled. After the online formalities, you can always come and negotiate directly at an agency or branch of the establishment. Another alternative is to contact a credit broker. This credit specialist increases the chance of obtaining a consolidation loan thanks to his relationship with numerous financial institutions. Above all, he helps the borrower to see clearly in the debt consolidation operation, and he brings his expertise to choose the most suitable and advantageous offer.
Going through a credit repurchase comparator before deciding
The credit comparator can be an institution or a simple online tool specialized in credit offers. It has the same role and mission as the credit broker. Only, the comparator works in an agency or online with several professionals as collaborators. The credit comparator works with several banks and their notoriety allows them to easily obtain offers for their clients. For borrowers who want to start a debt consolidation loan, the comparator can make them benefit from loans at an interest rate lower than the market rate and with more advantageous conditions.