Debt Consolidation-What you Should Know
A loan which is secured for the purpose of combining debts with higher interest rates under a single loan with a lower interest rate is known as a debt consolidation loan. It is important to understand that the debts are not really combined under this type of loan; however. Instead the funds are disbursed in the debt consolidation loan to repay the higher interest debt and the lower interest rate debt consolidation loan is then paid back over the duration of the loan according to the terms of the loan.
Purposes for a Debt Consolidation Loan
If you have a variety of debts, including high interest rate debt you may find a debt consolidation loan can help you to consolidate those debts at a lower interest rate. You can take advantage of such benefits as lower monthly payments with this time of loan. The following types of debts can typically be consolidated with a debt consolidation loan:
• Car loans
• Credit car debts
• Student loans
All of the above types of debts as well as any other debts you may carry can be repaid using a debt consolidation loan. It is important to carefully evaluate the importance of lower monthly payments in comparison to repaying debt over a longer period of time in determining whether consolidation makes sense for you. Debt consolidation loan calculators can make this decision easier and simpler.
How to Obtain a Debt Consolidation Loan
The equity in the home is often used to secure a debt consolidation loan. Generally, there are four simple steps to securing a debt consolidation loan:
- Obtain rate quotes from lenders and compare the rates they are offering
- Select a lender and submit an application with the related loan fees
- Lender will review application and credit scores
- Evaluate the terms offered to you
Of course, the steps listed above are only a brief overview of the actual process required to obtain a debt consolidation loan and some lenders may require additional steps. It is important to contact the lender directly regarding their requirements for a debt consolidation loan application in order to ensure you submit all of the necessary documentation.