Easy availability of credit ensures that you do not have to give up on any of your dreams due to lack of funds. However at the same time this also opens door for getting into a debt trap which means you have too much debt and you struggle to pay the dues. Debt consolidation offers a way out in such a scenario but what happens if you have a bad score too?
Debt consolidation loan is essentially a single loan which is used to pay off all other loans. As the name suggests this a loan that is used to consolidate your debt, this helps the borrower as instead of managing many loans the borrower needs to manage a single loan. So when a debt consolidation loan is taken to pay off other loans, instead of keeping track of multiple loans with different interest rates there is need to track only one loan; there is only one interest rate to worry about and only one date on which the dues need to be paid. These are unsecured loans with no collateral. Getting loans with bad credit is difficult, so how do you get out of a tricky situation when you have multiples loans and a low a rating?
Below are three things that you need to keep in mind when you are seeking a loan for your debt consolidation.
Generally personal loans are considered as an option for consolidation of debt. A few banks offer special loans for debt consolidation too. However the question is where you should borrow from and which type of loan to opt for? Getting a personal loan with a low score could be a challenge. Personal loans come with a high interest rate and a low score means that the interest rate could go higher still and many lenders may not be willing to lend too! In such a scenario you could consider one of the peer to peer (P2P) lending options or seek a secured loan against an asset that can help you get over your debt. The idea is to get a loan at favorable terms.
If getting a loan with a low CIBIL Rating is proving to be a challenge for you then you could consider get a co-applicant who has a good CIBIL rating. Lenders want to be assured about getting their money back whenever they lend, a healthy credit rating is an indicator of the borrower's credit worthiness so they are willing to lend to someone who has a good score. If you have a low score you could ask a family member with a good rating to become a co-applicant, this will help you get your loan approved as the lender will be assured about the borrower’s credit worthiness. Obviously getting someone with a low score or a score that is in the same range as yours will not help.
A debt consolidation loan may seem like a great idea but you really need to think if the loan will really help you? This will depend on the terms at which the loan is taken and also the reason/s due to which you are struggling with your loan repayments. Loans for debt consolidation do not reduce your loan burden; you just get more time to repay your dues. The first thing that you need to do is focus on the interest rate at which you are getting this loan. You may have multiple loans with different rates and outstanding amount. Keep this aspect in mind when comparing the existing loans with the new loan.
Do you think that just paying a single EMI rather than multiple EMIs will help you in repaying your dues in a more disciplined manner? Will the new EMI structure ease your monthly burden; will it be lesser than all existing EMIs combined together due to a longer term? These are a few questions that should be pondered over before opting for a consolidation loan.
You could still get a loan or you could try and work on your rating and improve it.