Whether it's a house loan, student loan, or some unpaid credit card bills, a series of unfortunate events can sometimes drag you under the pressure of mounting debts. Without any doubt, high-cost debt is really very stressful and it can even affect your short term or long term financial goals. That is why most of us look to clear off the outstanding dues and want to get debt free. But it often becomes very difficult to pay off all of these outstanding debts by using one's monthly salary. In such circumstances, many people prefer taking loans in order to clear their existing debts. There are numerous benefits of personal loan as it have the ability to fund a variety of expenses. While for some it may be a wedding or traveling expenses, others need it to renovate their home. But the most useful feature of a personal loan is the ability to consolidate debts.
Here is why it makes sense to consolidate debt with the use of a personal loan:
Why personal loans for debt consolidation?
Personal loans which are availed for the sole reason of debt consolidation combine the multiple debts or balances into a single amount that will need to be paid on a monthly basis. Following are some of the main reasons why should you opt for a personal loan to consolidate your debts:
- Payment through Single EMI: Keeping a track of multiple EMIs (equated monthly installments) becomes very stressful. And if in case, you forgot to make repayment of any of your EMIs, then you may have to pay a penalty. Not only this, your credit score & relationship with the loan provider may also be affected negatively. In order to avoid such hassles, it is a great idea to consolidate your debt by utilizing a personal loan. This will enable you to make only one EMI payment every month which ultimately makes the repayment a way more convenient and easier.
- Low-Interest Rate: One of the major benefits of personal loan is the low-interest rate. There are chances that you may find the interest rate charged for a loan is lower than the current rate of interest you pay. As there are numerous banks and financial institutions that offer personal loan at a high-interest rate. That is why it is vital to compare personal loan on the basis of interest rate to make the well-informed decision.
- Fixed Repayment Tenor: Personal loan lenders or banks usually offer a loan repayment tenor between one year & five years. You will need to make the loan repayment within this time frame. Knowing how much amount you will need to pay to the personal loan lender month after month can assist you to plan your finances. In addition to this, you can easily pay off your loan amount with the utmost ease.
What are the benefits of personal loan for debt consolidation?
There are numerous benefits of personal loan which make it the best option to consolidate your debts. Few of them are given below:
- Online Application: Nowadays, the majority of the banks or lenders allow its applicant to apply for a personal loan online via their official websites. Applying online for a loan is not only the hassle-free process but also it enables you to compare different personal loans offered by various personal loan lenders on just a single webpage.
- Fast Approval: Most of the banks approve the loan application in a timely manner. All they take some time to verify the details and supporting documents provided by you.
- Quick Disbursal: After approving your loan application, most of the banks disbursed the loan amount immediately into your savings bank account.
- No Guarantor/Collateral: It is an unsecured loan so you don't have to submit security or collateral to avail a loan.
- The flexibility of Making Repayments: One of the main benefits of personal loan is that the banks or lenders allow the borrowers to repay the loan amount through flexible EMIs equated monthly installments. You can even choose any repayment term between 'one year & five years' as per your convenience and ability.
- Prepayment: If you want to pay off your loan amount quickly then you make the prepayment as most of the lenders enable you to prepay the amount of loan during the loan repayment tenor. But please note that you may have to pay a nominal charge for making a prepayment of a loan amount.
Things to Consider When Opting for a personal Loan for Consolidating Debts
Availing a loan is indeed a great idea to consolidate all of your existing debts if multiple repayments are becoming stress. Well, here are certain things you should consider before availing a personal loan:
- Tenure of Existing Debts: It is advisable that you should check the tenure of existing debts before availing a personal loan to pay off them. If in case you think that you'll be able to repay all of your existing debts within a few months then it does not make a sense to avail a loan for the debt consolidation.
- Credit Score/CIBIL Score: Credit score/CIBIL score is one of the important factors that will affect the personal loan interest rate in UAE. The lender will charge a low rate of interest if your credit score is good. And if your credit score is low then there are high chances that lender will charge you a high rate of interest. So, keep in mind that availing a personal loan for the sole reasons of debt consolidation is only a good idea when your credit score is good. Since the lender will charge you a low rate of interest.
- Compare Other Fees & Charges: Apart from comparing interest rate, it is highly advisable that you compare other fees & charges such as processing fees, prepayment fee, and early settlement fees associated with the personal loan before procuring one.
There is no doubt that there are several benefits of personal loan for paying off debts but keep in mind that it has its own limitations as well. So, make sure you analyze your financial situation carefully before opting for a personal loan to consolidate your existing debts. Because your goal should be to gets debt free not adding up more debts. Don't forget to compare different personal loans offered by various banks or lenders, their interest rate, tenure period, and other features before making a final decision. This will ultimately help you to reduce your financial burden in a pro manner.