Getting a loan is a sure means of getting out of financial difficulties. But it comes with responsibilities and maximum carefulness. Repaying your loan is a tremendous responsibility you must pay great attention to. The difficulty of making timely repayments of debts has to encourage borrowers to consider a consolidation loan. Doing this, you will be on your way to a calm, healthy, and debt-free life. Debt consolidation will definitely liberate you from your debt woes and pave the way for your healthier financial future. How debt consolidation works, how to apply, debts you can consolidate, etc are all-inclusive in this article.
What is a consolidation loan?
They see consolidation loans as ‘Debt consolidation loans.’ Debt consolidation loan is the type of loan you take out to pay off several smaller loans. The significant thing about this type of loan is you owe only one creditor that is, the financial institution that gave you the debt consolidation loan. Besides that, the repayments are often at a lower interest rate over a manageable period.
Debt consolidation helps you to refinance in order to deal with overwhelming debt. This is because it allows you to combine all of your short-term debts. These debts come as credit card debt, store accounts, personal loans, and so on.
How debt does a debt consolidation loan work?
Just like every other form of loan, before you get a debt consolidation loan you must meet some criteria. First, the lending institution must ensure that you can repay the debt consolidation loan.
Then, when they approve the loan, you will receive the loan in your bank account.
Some financial institutions may insist that you show them your settlement letters from your creditors. Here, the financial institution will settle your debts directly with your creditors.
Ensure that the lender gives you a repayment plan you can manage for your debt consolidation loan.
How to apply for a debt consolidation loan?
The South National African Credit Regulator (NCR) regulates loans in South Africa under the National Credit Act (NCA) 2005. Therefore, ensure you apply for the debt consolidation loan through a reputable financial institution that complies with the NCR standards.
You need the following to apply for a debt consolidation loan?
- Have a good credit record
- Earn a regular monthly income of at least R5,000
- Be 18 years old or above
- Present the details of your bank account into which you receive your salary
- Get your last 3 months’ payslips or bank statements
- A copy of your identity document
- Get a recent document confirming your residential address
What are the financial institutions that offer consolidation loans in South Africa?
There are notable financial institutions that offer debt consolidation loans in South Africa. But before you make the final decision on your choice for a debt consolidation loan lender, consider the following.
The following are the notable financial institutions that offer consolidation loans in South Africa:
- Blue Oak Systems
- Paragon Lending Solutions
- Debt Rescue
- Debt Busters
What types of debts can I consolidate?
There are debts you can consolidate with the debt consolidation loan. You will now have fewer payments to worry about. Debt consolidation loans will give you the relief to have some money you can invest.
The following are the debts you can consolidate:
- Student loans: Having taken a student loan to cover your tuition fees and other costs. You can take a debt consolidation loan if you still have a student loan in your name
- Personal loans: If you want to get out of debt quicker from your personal loan. Seeing that some personal loans have high-interest rates. You can get a consolidation loan so you’ll save money on the interest rate. This is because the debt consolidation loan interest rate is lower than a personal loan.
- Credit cards: Debt consolidation loan can help build you a solid plan to get rid of credit card debt once and for all
Is my credit score at risk if I get a debt consolidation?
Your credit score is one of your details lenders look at before they give you a loan. Your credit score testifies your financial behaviour to the lenders. Well, Debt consolidation loan benefits your credit score because you will probably have less chance to miss payments. You’ll only have to make payments only to one lender and not to different lenders or accounts.
What are some benefits of debt consolidation?
- It will help you make only one payment, service fee and credit protection plan
- Its personal protection plan will settle your outstanding loan balance against unforeseen circumstances like death, sickness, disability, etc
- The monthly repayment of the qualifying credit will be lower than what you’re currently paying
- You will have more money to invest
With a debt consolidation loan, reduce the size of the money you spend on loan repayments. This is because the goal of a debt consolidation loan is to reduce your monthly debt payment. Besides that, this type of loan aims to ease your financial burden by giving you extra cash at month end. However, ensure you can repay the debt consolidation loan before you get it from any reputable financial institution.