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What Can You Expect While Applying for a Debt Consolidation Loan?

Have you been making three or more payments every month for the last few months? Are you tired of setting reminders on your mobile for your payment dates? Are you losing sleep due to the fear of missing premium deadlines? Then it is time for you to consider debt consolidation.

It is one of the many ways that can work for you in simplifying your debt situation. There are several alternatives to debt consolidation, but it is indeed one of the most popular, thanks to its higher than average success rate.

It is a new repayment strategy that can reduce your number of monthly payments to just one. It does involve taking out a new considerably large loan, but it also entails lower interest rates. You pay only once per month to one company and at a flat interest rate. It works for credit card debt payments, personal loan payments, along with repayment of home and auto loans as well. Experts always suggest consolidation of higher interest rate loans such as credit card debts to reduce monthly payments.

Choosing debt consolidation loan companies – reading the fine print
Not all debt consolidation companies are the same. Just like different private banks have different loan requirements and offers, these debt consolidation companies also come with unique features. Some companies start out with introductory rates that are almost too good to be true. While working with such new companies, you need to be careful. These initial charges do not stick around forever.

After a couple of months, these rates can increase significantly. They can double or triple depending on the amount and your credit score. For some companies, the numbers vary, and they depend on market indicators like the US Prime Rate. After all, when you opt for debt consolidation, you apply for a lump sum loan. It is mandatory for each applicant to read the fine print before committing to a payment system.

Why do debt consolidation companies check credit scores?
Your credit score will determine many things if you wish to consolidate your loans. Almost all lenders check FICO scores and some also check VantageScore. Banks that have already provided you a home mortgage, auto loan or credit cards have done so depending on your past credit scores. If your scores were very good or excellent, you must have been enjoying the minimum interest rates and best offers.

Regardless of whether you have fair or poor ratings, banks usually charge much higher interest rates. If you have been paying higher premiums and installments for your past debts, chances are your credit score has not been optimum.

FICO score between 800 to 850 is exceptional, and only 20% of all people can maintain that score range. Only about 18% can manage to keep a score between 740 and 799. That is "very good" as per the FICO standards, and a majority (22%) can maintain a "good" score between 670 and 739. People with a decent FICO rating usually score between 580 and 669, while those with "poor" standards score between 300 and 579.

Depending on where your score is right now, you can enjoy between 5% and 30% interest rates on your future loans. Therefore, it is imperative to find the right consolidation loan company and debt consolidation expert to help you improve your current debt situation. Not meeting payment requirements on your new loan will further worsen your scores and render your profile unfit for further financial assistance.

How does your credit score affect your debt consolidation loan options?
Your score can determine the difference between hundreds or even thousands of dollars in payment each month. Having a "good" FICO score can mean renting a suitable apartment, riding a good car and enjoying the cell phone service of your choice.

Your credit score influences every aspect of your life and your lifestyle, whether you believe it or not. Your credit score is like the report card your bank, credit union and private lenders evaluate before sanctioning a loan.

While choosing your debt consolidation company, check their credit score requirements. Some lending parties, especially the banks and government financial institutions offer loans to people with "good" or at least "fair" FICO Scores only. VantageScore scale is not very different from FICO score, and you can find out your score on both scales online.

Knowing your credit score will not affect the record. In fact, you can get your credit report for free of cost once a year from any accredited credit reporting company. You should take advantage of this and get your complete report before you approach any consolidation loan company.

Keeping an eye on your score will help you improve the record. Almost 31% of the people, who check the reports regularly once a year, felt their scores get better over time. Over 70% of the ones who ran a check once every month or 12 times per year are twice as likely to improve their records over time. You can modulate your payments, credit utilization, length of your credit records and new inquiries to impact your credit score and improve your personal finance positively.

How can a debt consolidation loan improve your FICO score?
A Debt consolidation loan can always help you to make these monthly payments that account for 35% of your FICO score and improve your credit history that accounts for 15% of your score. The consolidation loan companies have the potential to help you out if you are ready to usher a change in your life.

Debt consolidation loans are a method of transferring credits from multiple parties to one company. Therefore, you must be ready to pay the loan company when it is time to start the monthly installments. Always run accurate calculations before you agree to the terms of payment. If necessary, take the help of debt counselors at any non-profit debt consolidation agency before approaching a loan company.

Not paying your new loan company on time is not going to help you get off the hamster wheel of debt. It will further reduce your score and make it impossible for you to embrace a better lifestyle. Tread carefully, research your options and read the white papers thoroughly before you sign on the dotted line.
What Can You Expect While Applying for a Debt Consolidation Loan? What Can You Expect While Applying for a Debt Consolidation Loan? Reviewed by Dhanur Chauhan on 4:03 PM Rating: 5