Know About Debt Consolidation and Its Features

Debt consolidation refers to the process of taking out a new, high-value loan to pay off all your other loans. The process of availing of a debt-consolidation loan is simple. You apply for a consolidation loan with another lender. Once your loan application is approved and your lender releases the money in your account, you clear all your pending loans with other lenders. Once this is done, your new EMI obligation is only towards your new lender. 

Over the last few years, debt consolidation has become quite popular. Let us try and understand the benefits associated with this process and the reasons for its increasing popularity. 

• These days, most people avail of loans to fulfil life's basic needs and requirements. For instance, it's routine for people to avail of a home loan to buy a home, a car loan to fund a car purchase, an education loan to put children through college and so on. Over and above this, everyone uses credit cards too. Thus, an average borrower has a minimum of five to six deadlines to take care of. It is quite difficult to keep track of so many deadlines. Thus, borrowers often miss paying EMIs and credit card bills on time, which leads to lenders slapping them with late fees and other penalties. When borrowers consolidate their loans, they have only one deadline to take care of. This makes loan repayment stress-free and easier. 
• Debt consolidation also allows people to save money. Credit cards and unsecured loans, such as personal loans and car loans, draw a very high rate of interest. Lenders sanction debt consolidation loans at a nominal rate of interest. Thus, debt consolidation allows borrowers to save more money in the long run in the form of reduced interest outgo. 
• Debt consolidation loans also come with a long repayment tenor, which further makes loan repayment easy. 
• If you take a single loan to clear all your loans, you will have only one deadline to take care of each month. This will make it easier for you to keep track of your credit card payments and EMIs and paying these on time each month for an extended period will automatically help you improve your CIBIL score. 

Most lenders, these days, offer debt consolidation loans and these loans offer several advantages. However, if you are planning to apply for a consolidation loan, consider opting for a loan against property for debt consolidation. 

Loans against property are secured loans under which a borrower pledges a residential or commercial property as collateral. Since loans against property involve collateral, lenders sanction these loans at low-interest rates. In fact, loans against property are the second-cheapest loans after home loans and they draw a much lower interest rate than debt consolidation loans. Thus, when it comes to debt consolidation, loans against property turn out to be more cost-effective than personal loans or debt consolidation loans.