How to Apply for a Debt Consolidated Loan in India? Types, Pros and Cons

Debt is one such factor that might hurt your financial situation and serve as a barrier to increasing your savings. A loan for consolidation is one of several quick, easy, and practical ways to reduce it, though, and it is a wise choice. By using consolidation loans, you concentrate on just one loan. After consolidating all of your obligations into one loan, you have one monthly amount to make.

Did you know? Debt consolidation combines several debts into one payment, usually high-interest debt like credit card payments. 

What are Debt Consolidation Loans?

A borrower can reduce the payments they must make each month by combining their debt. It can streamline your finances and offer loans with better terms, such as reduced interest rates or smaller EMI payments.

Personal loans or debt consolidation loans combine several loans into a single set monthly premium. Most lenders are open to the potential uses of the loan funds. Therefore, the borrower must apply the loan funds to the outstanding loans and credit card balances.

You will also start making monthly payments to the new lending institution for the loan term. Some banks pay down your previous loans before taking over the balance. As a result, banks, non-banking financial companies, and certain fintech lenders provide debt consolidation loans. But only some lenders offer this option. As a result, as a borrower, you must consult your lender. Private loan consolidators are considerably more readily available to pay off such aggregated loans.

Also Read: Types of Loan - What are different Types of Loan in India?

How to Apply for a Consolidated Loan?

Follow the steps below to know how to avail for the consolidated loan in India

• Apply for loan- Many lenders let you apply for a loan and then get preapproved before submitting a formal application. Typically, a mild credit check is part of this process; this won't lower your credit rating. Avoiding the lender that doesn't offer pre-approval may be preferable if numerous others on your list do.
• Submit a request- Submit a request once you've chosen a lender. Your private details, employment, income details, and the amount you wish to borrow are often required.
• Prepare a note- Make a note of the high-interest bills you want to merge, including credit cards, prepaid cards, cash advances, and other obligations, and tally up the outstanding balance. The sum of your debt consolidation loan should be enough to pay off these bills.
• Calculate the amount- Add up the total you pay monthly toward your debts, and review your spending plan to see if any changes are required to keep up with debt repayment. The new loan needs a lower interest rate and affordable monthly payments. Set up a payback schedule while keeping your budget in perspective.
• Show the proof- In rare circumstances, a lender might ask you to show proof of some of the data you've given. It can consist of documents such as a photocopy of your photo ID from the government, salary stubs, financial records, and evidence of residency. Prepare these things before applying to ensure a quick and easy application procedure.
• Calculate the total cost- However, before you apply, calculate the total cost of the loan and then use a credit card repayment calculator to compare the cost of continuing to make payments on your credit and debit cards. By comparing these figures, you can decide if you'll save enough money to make the loan application worthwhile.

What are the Different Types of Debt Consolidation?

Here are some different types of debt consolidation. 

• Credit card with a balance transfer- If you have many credit card bills, a balance transfer credit card can assist you in paying them off while lowering your interest rate. A balance transfer credit card transfers several sources of high-interest credit card debt onto one credit line with a lower interest rate, similar to a debt-consolidation loan. Many balance transfer credit cards provide a 0% APR promotional period, which lasts between 12 and 21 months. You can avoid paying hundreds of dollars in interest if you can pay off all or most of your debt during the promotional period.
• HELOC- HELOC (Home Equity Line Of Credit) is a line of credit borrowed against. the available equity of your home. Home equity loans refers to the difference between your home's evaluated worth and the amount of your mortgage loan. If you own a house with substantial equity and have a great credit history, you can reasonably consolidate your debts by borrowing a portion of that equity. Many borrowers: of home equity employ the funds to settle higher-interest debt, such as credit card debt. A HELOC is a long-term loan with an average draw time of 10 years during which money can be withdrawn. After a maximum 20-year repayment period, your credit line will no longer be available for borrowing.
• Family and Friends Loan- We have heard that consolidating debt is a good idea. But, it can be more beneficial if you have to reduce your debt in one shot. You do not have to face fees and hassle of paying back your debts from the bank. In some cases, family members may be able to lend you money at a low interest rate but there is no guarantee on this. So, there is also risk involved when you take loans form anyone other than your bank. It can leave both of you at risk!
• Personal Loan- Personal loans are an excellent way to clear a debt or even enhance the savings. There are several advantages of opting for a personal loan over getting a credit card, overdraft protection and even second mortgages. The best part about personal loans is that they are offered by online lenders as well as by banks. So, if you have been looking for a solution for clearing your heavy debt burden then go ahead and opt for personal loans.

Also Read:  How to Apply for the Best Business Loan in India? - Types of Govt. Loan Schemes

What are Some Loan Consolidation Companies in India?

Given below is a detailed table of some major loan consolidators in India:

Some Pros and Cons of Debt Consolidation

One should consolidate their debt; weigh the benefits and drawbacks before making this decision.

Pros of Debt Consolidation

• Credit score elevation- If you consolidate your loan, your credit score can go up. Your credit usage ratio may decrease if you pay off your credit cards through debt consolidation. Your payment history will increase if a debt consolidation loan enables you to complete more on-time repayments.
• A simpler method of debt repayment- Keeping track of many credit card or loan payments every month, especially if they have different due dates, can take time and effort. Planning your month and keeping up with payments are made simpler by taking out a single debt consolidation loan.
• Lower overall interest- You can save on your loan if you combine many loans with interest rates in the double digits into one with a rate under 10%.

Also Read: Know How To Get Instant Loan without CIBIL Score

Cons of Debt Consolidation 

• Higher potential debt costs- Your ability to save money with a debt consolidation loan relies on the loan's design. You will wind up paying more in interest over time if you opt for a longer payback period but have a comparable interest rate.

• Upfront expenses- Any debt consolidation may incur costs, such as initiation, balance transfer, or closure fees. Before applying, you should compare these costs to any potential savings.

Conclusion

There are several choices for consolidated loans. Examine the interest rates, loan terms, and fees each lender charges before deciding which techniques would be effective for you. Avoid mediocre lenders as much as possible because they have strict lending terms and the highest interest rates for people with poor credit. Even if your credit rating is low, it's wise to start by researching traditional lenders.

Verifying the legitimacy of the lenders you're considering is equally crucial. Visit their websites, look for reviews from previous and present borrowers, confirm that they are registered in the state where you reside, and get in touch with the local authority's office in your area for additional confirmation.

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