Consolidation Loans

Consolidation Loans – how does it work?

A loan for debt consolidation is an amount of money used as a single loan, which is given to consolidate previously taken ones, thus making it easier to pay off the debt. Having a single credit balance as a replacement of multiple loans and credits helps to pay back. Also, sometimes a single debt consolidation loan is taken to make interest rates lower, just to pay at least a little bit less.

As an example, let’s imagine you’ve got multiple debts, each with its own terms and conditions:

  • credit line 1: R3500, annual interest rate 24.90%;
  • credit line 2: R2500, annual interest rate 18.90%;
  • credit line 3: R1500, annual interest rate 12%.

Instead of paying these debts separately, all of them can be joined into one loan, so you’re to pay back not three but one. So consolidating this R7,500 debt on a loan at an annual interest rate of 7.00% and repaying the loan over four years means you will pay R1,120 as an interest. But in case you make a minimum monthly payment of 4% on each credit line, you will need more than 12 years to repay a full debt.

Important: Your credit score is an important point for determining eligibility to decrease an interest rate. So if you didn’t get any troubles with repaying previously taken loans or credits, the score is high – you can apply for a consolidation loan with lower rates than those you used to pay already.

Different forms of loans

There are several types of available debt consolidation loans in South Africa. They are introduced according to trustworthiness, estate assets, debtor’s financial status, and payment form (cash or credit card).

Speaking about South Africa in particular, there are a lot of available options to consolidate already existing debts into a single one. Majority of lenders and companies providing such a service would offer secured loans when it is required to leave some assets as a payback secure. But there are also debt consolidation loans for non homeowners and those who haven’t got a car or other valuable things to leave as an asset in possession.

Credit card debt

Credit card consolidation loan is a good alternative to multiple credit cards already taken by a debtor. First – it’s more convenient, as you are to make a monthly payment for only one loan instead of multiple cards. Second – you can save additional money by making interest rates lower.

Note: Debit transfers usually do not count towards introductory bonuses offered by the card.

Debt Consolidation

These are usually unsecured loans to individuals specifically designed to pay off debts. They are considered being high risk debt consolidation loans for lenders, as mostly they are unsecured. Such types of loans are mostly introduced with fixed interest rates as well as repayment terms to make it more stable, trying to avoid unnecessary risks.

Debt consolidation loans due to high risk are mostly accepted to those having a job with a good salary, without problems considering monthly payments to other banks or companies. But still, it’s possible to find consolidation loans for people with a bad credit history or even consolidation loans for blacklisted people in other companies.

Consolidation Loans for Students

Students having multiple loans with different terms and interest rates may try to save money by consolidating all the loans into a single one. Even loans from different services and providers may be easily consolidated at one place with a single monthly payment.

Secured consolidation loans

These are secured by residential real estate. It can give a chance to get an even amount, equals 4/5 of actual real estate price. The money can be used to consolidate all the previously taken credits and loans. What’s really great about this type – additional security in the form of real estate assets can allow you to get a really huge amount of money, which would be enough to cover all the previous debts. But on the other hand, you should clearly understand – if you don’t make monthly payments – you increase the risk of losing your house left as collateral.

Cash-out consolidation loan

The scheme of such loans comes as follows: you get a new loan, which is more than your previous one. New credit covers and closes previous ones, and the difference may be given as a cash to be used for any purposes. What is especially great about this one – is that you completely pay off previous loans and still get additional money to solve current problems.

Is consolidating your debt worth the money?

It should be made clear that according to the chosen form of consolidation, you may be obliged additional fees and commissions. Exact numbers are stated by each company and institution, but in general, it may be:

  • credit card debt transfer fees (typically 3-5%);
  • fees for loans to individuals for debt consolidation;
  • additional fees for predetermined completion.

Probably the best way for getting the most beneficial consolidation loan, having the lowest interest rates, commission fees, and monthly payment is to compare terms offered by every available loan or consolidation credit line.

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Applying does NOT affect your credit score!

No credit check to apply.