Debt consolidation loans are nothing but approaching for refinancing to clear off your debts. Why do you need someone to refinance? To get an investment from a creditor, it is difficult the very first time. Just imagine how difficult it would be to get a debt consolidation loan.
Before investing or financing an individual or a company, the lenders analyze the financial soundness and check whether the individual or the company is able to repay the loan amount. But one needs to be aware that the situation prevailing today may not be same tomorrow.
Whether it is an individual or a company, judging the capacity to repay on some analysis is also not right. The individual may get the support of his family in clearing the dues and in the case of a company; it may earn profits overnight which is again uncertain.
Requirements to get a debt consolidation loan in case of an individual
Getting a debt consolidation loan is a tough job- whether it is for an individual or a company. Let us now analyze the various requirements needed in case of an individual:
Good image in terms of finance refers to having a good credit score. Every individual has a credit score in this word. In short, a credit score refers to the statistical number which is used to judge the consumer and how good he/she is in repayment of debts. Normally a credit score is evaluated considering the entire credit history of the consumer. Any default may disturb the evaluation.
Experts suggest that any person with a good credit score will always be eligible for a loan- whether it is normal or debt consolidation loan. The higher the credit score, the more trustworthy the consumer is. Normally, a lender would like to lend money to a trustworthy consumer.
Normally to get a sort of loan, you should show that you own certain properties or assets. Certain lenders demand collateral security to sanction some loans. In simple words, collateral security is the property or one of the assets (which is owned by the borrower) that the borrower promises to give it to the lender in case of any default in repayment of the loan.
Why do you think the interest rates charged on the secured loan is less than that of the unsecured loan? It is because the lender has a guarantee of getting his loan amount back by the sale of collateral security given by borrower. In case of an unsecured loan, no such collateral security is given, hence to compensate the lender charges high rate of interest. Some of the examples of collateral security that can be pledged are home, two-wheeler or 4 wheeled vehicles, jewelry, or some other property.
Proof of Income:
Normally when you approach a lender for a debt consolidation loan, he will question you about your income and what are doing, etc. So, to get a loan, submission of proof on income is very necessary. If you are a salaried person, then your latest pay slip has to be submitted. If you are unemployed, then a guarantor has to sign the surety document stating that in case of failure to repay the loan amount, the guarantor will repay the amount.
You need to clear off the debts at the earliest is the basic requirement which makes to approach for a debt consolidation loan. But just because you are in need of funds, ensure that you choose a right person to take the loan else you may land in trouble.
Precautions to be taken while taking debt consolidation loan
Enquire about lender:
Practically seen, you won’t have so much time and patience to check the details about the lender. All you want is to get a loan and clear off all your multiple debts. In such a situation, you try to take a loan from the first person who is offering you the loan.
It is always advisable that you have patience and check your lender’s details. In case the lender is doing some sort of illegal business, then even you may be under the legal scanner for taking a loan from him even though you are on the right path.
Recheck your calculations:
It is always good to recheck your calculations and then decide whether you really require a debt consolidation loan or not. Suppose after all the exercise; you realize that some of your debts could have been handled by discussing with the lender, and then unnecessarily you will have to pay the interest rate for that amount. There is no doubt that the excess amount can be adjusted towards clearance of some other debt. But your whole planning will get disturbed.
Always check 2 or more lenders and compare the interest rates they are charging on you. You should also check the time limit they are giving.
Terms and conditions:
Before taking the loan, always check the terms and conditions given by the lender and only when you feel you can fulfill the terms, proceed further else you may land up in big trouble.
Repayment schedule has been made for the old debt and the new debt which the debt consolidation loan. The loan amount should be utilized appropriately to clear off the old debts. Even though you will sufficient time to clear off the new debt that is debt consolidation loan amount, planning to clear it has to be started the movement you get the loan amount. Not only planning, but you have to start implementing your plan also. One point to keep in mind is that some financial institutions charge fees for pre-closure of the loan amount. So, plan your repayment
In the case of a company, having debts is common, but as an individual, you should always try to minimize your expenses by managing it with the monthly income you are earning. I know it is tough but making an attempt if always appreciated.