Brainy Loans

What is a debt consolidation loan?

Debt consolidation is a form of debt financing that helps borrowers take one lower-interest loan out to pay off all of their other higher-interest loans or credit card debt with one payment not only paying less in interest but relieving their financial stress. 

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Debt consolidation loans are best used when the loan you are getting can cover your current debt and the interest rate with the payment is lower than what you are currently paying. Usually, it’s the best practice to use loans if you have a high-interest credit card that you’re having trouble paying down. This loan help gives you a break by combining all the amount and stretching the payments out for a few years giving you time to pay down the loan faster. 

What to consider when getting a debt consolidation loan?

There are a few factors to consider when applying for a loan I will break them down for you.

Lender Options: When looking for a loan consider the features the bank offers to make the process easy for you. Some feature makes include an easy interface app that connects you directly to your bank making the payment process simple. Other features to consider are credit score monitoring, payment alerts, and direct payment to creditors so you don’t have to spend time moving money around from one account to another. Also, look for caring lenders that offer hardship programs that can extend your payments or give you a break if you facing hardships. 
Annual Percentage Rates: APR is an extremely important factor when considering getting a loan, the APR helps you get a full picture of what the loan will cost you with interest and any additional charges. Rates depend on a few factors starting from the bank, credit score, income, and your debt-to-income ratio. Those are some of the main factors lenders consider when giving out loans but factors may change depending on the lender. 
Origination Fee: This is a common practice with a lot of lending companies they use this to cover the cost associated with processing your loan. Origination fees can vary depending on the loan amount or the lender. Typically they can be anywhere from 1%-10%, in most cases the fee is added to your amount and broken down to your payment. Try to avoid lenders that have extremely high origination fees. 

How to Increase the chances of getting a debt consolidation loan.

To increase your chances of getting a loan is pretty simple, most lenders are looking at the same factors to give out a loan and we just need to play by their rules. 

The credit score would be one of the main factors lenders consider when you apply for a loan which not only can help you qualify with more lenders but also can get you a better rate saving you money on the loan. The best way to increase your chances of getting approved for a fair loan is by working on your credit score, some tips to help you increase your credit score is to pay down the loans you currently have and make on-time payments. 

Getting a cosigner is another simple yet effective way to increase the chances of getting approved for a loan. Adding another person with a better income, and higher credit score increases your chance of approval drastically due to lenders lowering their risk by having two people responsible for paying back the loan. Also consider applying for a joint application which will consider both of your income, credit score, and credit history increases your chances of getting some loans you might not be able to afford. 

Other Debt Consolidation Tips

When looking to take out a loan I suggest planning ahead by putting some money or making a plan on how you will be paying back the loan. Also, try to slow down on spending money and increasing your debt which will help you get a better loan with a smaller payment. Most debt consolidation loans are longer term so be prepared to make the payments for a longer period of time to get yourself out of debt.

What will debt consolidation do to my credit score?

Debt consolidation will help your credit score in the long run as long as you make the payments. When applying for a debt consolidation loan, you will be paying off your other high-interest credit cards or loans, which will boost your credit score because you will be lowering your debt-to-income ratio (DTI). But on the other hand, it will ding your credit score temporarily because lenders will be doing a hard credit pull. 

In Conclusion. 

To summarize everything a Debt Consolidation loan might be the right fit for you, be sure to shop around and see who can give you the best terms for your loan. Before applying for a loan consider other factors like debt management classes, zero balance transfer credit cards, or maybe using some savings for your debt. 

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