Outlook Money
It is a process that involves getting new loans to settle several existing ones.
By loan consolidation, a borrower pays off for a single loan instead of managing various EMIs.
These loans are simply termed as "debt consolidation loans." These loans have no collateral provided, so are usually unsecured.
1. Several Unsecured Loans: For an individual with two or more personal loans, credit card payments, or small-ticket EMIs, consolidation can organise finances for him/her.
People who have high credit card dues, or with loans carrying high rates of interest can benefit from the consolidation of a loan that has a lower rate of interest.
Borrowers with temporary repayment difficulties can ease their burden by choosing an extended loan period through consolidation.
Loan consolidation is not always cost-saving. Though EMIs are reduced with a higher tenure, this can add to the total interest burden over a long period.
Loan consolidations must be compared with the collective cost of the combined loan which includes fees and interest and the aggregate cost of all the current loans.