Combining more than one debt into a loan provides the borrower with a favourable loan term such as tenure of the loan, including lower interest rates, etc. The amount the borrower will receive from the new loan will be used to pay off other outstanding debts. Borrowers can pay off smaller debts in one shot by taking one large loan. In doing so, they not only save on interest, including the finance cost of the loan. The borrower just needs to make one payment instead of making several payments to various creditors. This right here is Debt Consolidation Mortgage.
How does debt consolidation work?
As mentioned above, debt consolidation uses various forms of financing to pay off several debts. If you have multiple outstanding debts, the best alternative is to apply for a new loan and consolidate all the debts into one easy payment. Many individuals apply for a debt consolidation loan through a traditional lender, but most times, they get turned down based on their financial history. The best option in this scenario is to apply for a debt consolidation loan with a private lender.
Various types of debt consolidation loans
There are two types of debt consolidation loans:
- Secured loans – The loan is backed by the borrower’s assets like a car, house etc. This means, if the borrower fails to repay the loan or does not make the scheduled monthly payments, the lender can take the asset kept by the borrower as collateral under their possession.
- Unsecured loans – Unlike secured loans, unsecured loans are not backed by the borrower’s assets. The interest rates for these loans are on the higher side, and the qualifying rates are low. Additionally, the interest rates are fixed, and they do not vary over the entire repayment period.
What are the requirements for debt consolidation?
In order for the borrower to qualify for a debt consolidation mortgage, they must have creditworthiness and the required income. They must provide the lender with the necessary documents like an employment letter, bank statements, credit card statements etc. Once your debt consolidation loan is approved, you must ensure what kind of debts you want to collate to pay off first. In some instances, the lender will decide which creditors need to be repaid. Additionally, if you have a loan with a lower interest rate that is causing you and your loved ones financial stress, you might want to pay off that debt first. For further details on debt consolidation, contact the team at One Mortgage Group.