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Debt Consolidation Loans

Tenure

12 Months

Interest:

1%/Month

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Tenure

6 Months

Interest:

1.5%/Month

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Tenure

3 Months

Interest:

3%/Month

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Debt Consolidation Loan is one of the common types of personal loan wherein the borrower takes a new loan to pay off the other older debts, thereby replacing multiple loans with just one loan.

This helps in simplifying the payments and can help one manage their finance better by combining multiple high-interest loans into one, you may get a lower rate of interest than you were paying and also reduce the chances of missing the payments because of multiple payment dates and variations in amounts.

The repayment period of a Debt Consolidation Loan usually ranges between 1 to 7 years, which is comparatively shorter than any other type of loan.

Let’s understand the concept of Debt Consolidation Loan by an example. Suppose Dinesh has the following debts running, 4 personal loans amounting to Rs 7,00,000 and 3 credit card bills amounting to Rs 3,00,000.

He can apply for a debt consolidation loan of Rs 10,00,000 at 11.5% for 5 years (60 months) from any bank or NBFC. This will help in closing his 4 personal loans and 3 credit card bills and he will just have 1 debt to pay off rather than the older 7 debts thereby saving himself from high EMI and charges.

Total Interest for 5 year = Rs 3,19,554 Total Repayable Amount = Rs 10,00,000 + Rs 3,19,554 = Rs 13,19,554 EMI for repayment = Rs 13,19,554/ 60 = Rs 21,993

You can use an EMI calculator to know the EMI of your debt consolidation loan.

Features

  • Lone lender so less chances of missing repayments
  • Interest at a lower rate than was being paid earlier, hence lower EMI
  • Flexible repayment period with EMIs
  • Simplified finances hence chances of credit score improvement

Eligibility Criteria

There are certain factors which a lender checks when your loan application reaches him. If you meet those criteria then you are eligible for a debt consolidation loan from the lender:

Criteria Determinant
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Documents Required for Debt Consolidation Loans

The lender calls for a set of documents before disbursing the Debt Consolidation Loan amount to the borrower. Here is the list of documents:

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Frequently asked questions

  • You can consolidate your high-interest debts like credit card balances, medical loans, personal loans, etc. However, a few loans like student loans or mortgage loans may not be eligible for consolidation under debt consolidation loans.

  • The loan amount of the debt consolidation loan will be transferred to the applicant’s bank account and then the applicant will have to consolidate his other loans by himself.

  • There can be a temporary dip initially in your credit score when applying for a debt consolidation loan due to the hard inquiry. However, timely repayments of the loan and paying off existing loans will improve and increase your credit score.

  • Interest rates differ from lender to lender and are calculated on factors like loan amount, tenure and creditworthiness of the applicant. The interest rates range from around 5% to 36% APR (annual percentage rate). An individual with a higher credit score typically gets lower interest rates on their debt consolidation loan.

  • Paying off your debt consolidation loan will help you save money on your interest and many lenders allow pre-closure of the debt consolidation loans without any penalties. Some lenders charge nominal pre-closure charges so do check with your lender once taking a loan.

  • It will be challenging to get a debt consolidation loan in case of a low credit score as most lenders check your creditworthiness before rolling out the loan offer. Some lenders might offer you a debt consolidation loan in case of low credit scores but they might ask you to submit a collateral/security or bring a guarantor to avail the loan or may offer you the loan at a higher interest rate.

  • Yes, you can still use your credit cards after you have consolidated your loans but it is advisable to use it smartly and avoid accumulating new debts to reach back to the previous difficult financial times.

  • In case you miss an EMI of your debt consolidation loan, which is not advisable, the lender will impose penalties (late payment fee and interest) on the outstanding amount and this remark will also affect your credit score.

  • Both the terms are different, debt consolidation means taking a new loan to pay off the existing loans whereas debt settlement means negotiating with the lender to pay the redacted amount.

  • It is difficult to get a debt consolidation loan in India for an NRI as most lenders don’t allow it but a few lenders offer personal loans to NRIs which can be used for debt consolidation.

  • Get a Personal Loan that fits your needs. Apply for loans from Rs 1,000 to Rs 15 Lakhs with Lowest Interest Rates.
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