What is a debt consolidation loan? If you have several outstanding loans and the interest payments every month are quite high, this is an option is to consolidate several loans into one.
So what exactly does this mean? It simply means putting together multiple loans into one loan. This reduces the overhead, financial charges on multiple loans and bring down the overall cost. Merging multiple loans into one is also known as Debt Consolidation. Not only does this simplify your finances, but you can also use this method to pay off the higher interest loans in one go and cut down your average monthly payment.
Rates of Debt Consolidation Loans
One simple way to simplify management of your debt would be to apply for debt consolidation loans. Most banks and financial institutions offer debt consolidation mortgage against a security that does not have a loan on it. A relatively newer vehicle, other valuable assets like a boat, top-rated mutual funds or even vehicles like RV could qualify as security for this type of loans.
On average, banks and financial institutions tend to offer attractive rates for this kind of debt consolidation loans across Canada. As per records in the past decade, banks have charged interest rates between 7- 12% for this type of debt consolidation loan. The rates charged by finance companies, however, could vary between 14% to even 50% if the loan type is unsecured.
Advantages of Debt Consolidation
You might wonder, does it make sense to apply for debt consolidation loans or consolidate all your loans into one?
- It is one simple step to cut down higher interest payments;
- You can easily pay off higher interest loans and settle for one with a lower payout;
- Your monthly finances get simplified instantly
- Related service and finance charges are also lower as this will now pertain to only one loan amount
- You get a distinctive timeline to pay off all your financial liability without any additional charges.
Disadvantages of Debt Consolidation
There are some disadvantages that you must remember before applying for debt consolidation:
- Most of these types of loans require security or collateral
- Individuals applying for this kind of loans must have a reasonable credit score
- The interest rate is higher than regular home refinancing loans
- For unsecured debt consolidation loans, rates can be relatively higher
Do you want to start simplifying debt management and hopefully bring down interest rates? Check out our best rates for debt consolidation loans .