Hidden Secrets Of Debt Consolidation
Although a debt consolidation loan seems like a very good idea at first glance, you must look at all the details of your loan before actually taking that step. The advantages of such a loan are glaring.
• Better terms and conditions
• Lower rate of interest
• Longer payback terms
Debt consolidation is growing extremely quickly. There are billions of dollars that are being transferred to the debt consolidation format. Balances get transferred to official ‘debt consolidation’ issued by lenders.
As stated above, there are certainly many attractive elements of debt consolidation loans. But let’s look beyond these and see what it is that you should be weary about regarding these loans.
1. Be absolutely clear as to whether your loan is going to be of the secured or the non-secured type. A non-secured loan is the kind of loan that your friends or family lend you. You don’t have to put anything on the line in case you are not able to make the necessary payments on time. The money is loaned to you because the lender has confidence in your ability to pay it back on time. A secured loan on the other hand requires for you to put something on the line in case you fail to meet the repayment requirements. It could be your house, some property, car, etc. you basically are required to offer a piece of collateral in order to be given the loan. In the event that you fail to make your payments on time, the bank has the right to seize your collateral.
2. It is important to find out whether you’re being offered a fixed interest rate or a variable interest rate. A fixed interest rate simply means that your rate of interest stays the same from the beginning to the very end. There is no fluctuation whatsoever. On the other hand, variable interest rates are those that fluctuate depending on certain external conditions. You are offered an attractive introductory rate that could last anywhere from 3 months to 5 years, after which your rates could fluctuate. People often get lured into taking a loan with a variable interest rate because of the low introductory rate or because they don’t expect the fluctuations to really affect them. This can be a costly mistake though and variable interest rates should definitely be avoided.
3. Make sure you calculate the bottom line of your payments and be aware of how much more you would have spent once you repay your loan. It is seen that people sometimes spend up to 200% more after repayments. Try an amortization table on your loan. This will indicate to you how much interest and how much principle you are paying with each payment.
Related posts: