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How To Secure A Debt Consolidation Loan Even If You Have A Bad Credit Rating

Personal_Finance / Debt & Loans Oct 21, 2019 - 07:18 PM GMT

By: Submissions

Personal_Finance

Debt is constantly on the rise with the latest statistics telling us that almost 80% of people have some form of debt and are making repayments. This includes debt from credit cards, car loans, mortgages, and personal loans which can be for a variety of reasons including sudden car breakdowns or medical emergency bills.


WHAT ARE DEBT CONSOLIDATION LOANS?

At times, there are people who, due to one reason or another, are burdened with more than one type of loan and the situation can be a lot more than one candle. Before taking any drastic steps out of desperation, you should know that there are options you can exercise to help manage the liabilities and reduce the burden on one’s shoulders. One such option is a debt consolidation loan.

While debt consolidation loans do not reduce the overall liability, they do make it easier for one to manage their debt. Under this arrangement, a lender agrees to take on the entire debt you have on your shoulders by extending an amount of money to you that is enough to pay off all your existing loans. Through this, you would only be left with one creditor whom you have to make one monthly payment to. 

IMPROVE YOUR CREDIT SCORE BEFORE YOU APPLY FOR A DEBT CONSOLIDATION LOAN

It’s not difficult to find bad credit lenders but that does not mean one abandons all caution and does not work to getting the best deal possible. Therefore, before you consider applying for a loan, check your credit score and work on improving it. If things are bad enough to warrant the need for a debt consolidation loan, then that means your credit score is going to be quite low. The more loans you have and the worse you are with managing repayments, the more adversely it will affect your credit score.

You need to improve your credit score before you apply for a loan because your credit score will have a direct impact on the interest rate and maximum amount of money your lender is willing to extend. The best person to help you in this exercise is a financial consultant, who will suggest different accounts you can open or financial rearranging you could undertake for your credit score to improve.  

RESEARCH YOUR OPTIONS

Once you have your credit score sorted out, you now need to carry out research on the best deals in the market. By researching different financing options, you can choose a plan that gives you the amount of money you need to pay off all your debt, has an interest rate that still maintains value, and prescribes a repayment plan which you can afford and manage with ease.

Your research will also help you distinguish between genuine lenders and scam artists as there are many people out there just waiting to take advantage of your desperate situation and put you into further problems by offering a high-interest short term loan that will further cripple you financially. Your safest bet would be to speak to your bank or credit union as these are parties that are familiar to you and to whom you are familiar. With a pre-existing dialogue, you can borrow money from a lender you already know without having to worry about any fraudulent activity.

However, chances are high that banks and credit unions would deny your application because of your already existing liabilities with said bank or credit union and the bad credit score you have as a result of having so many loans on your budget in the first place. In such circumstances, you’ll need to turn to private lenders and debt relief companies. You should be prepared for high-interest rates with such lenders as they operate on a risk-based pricing model like banks but without the security of a central regulator that banks have.

FINALIZING THE DEAL

Once you’ve chosen a lender, you’ll start discussing your options and this is where you have your chance to ask all the questions you might have. Leave no stone unturned and try your best to get everything in writing and create a communication chain with your lender. Once your questions are answered and documented, your lender will prepare the paperwork to be signed. Considering that private lenders deal with a variety of clients who have different needs and backgrounds, there won’t be a standard contract in place.

It will also help the discussion move faster if you come prepared with all your information and documentation. Prepare a list of your existing debts with lender details so the lender is aware of everything and doesn’t have to wait for information that could affect the outcome of your application. If you’re asked to fill out a form, be as honest as possible and don’t conceal anything. It’s a lot worse if you hide information rather than disclose it and risk losing the loan as the consequences of concealing information could include fraud or criminal misrepresentation.

You need to read through the paperwork in detail and ensure that your entire discussion is properly and clearly reflected in the agreement. Once you sign the document the deal is done and it will be difficult, if not impossible, to change the contract after it has been signed. So make sure everything is in order before you commit to massive liability.

RECAP AND CONCLUSION

As you can see from the above, debt consolidation loans are a good option if you have a lot of pre-existing debt with several creditors. The ease of management and reduced interaction with various lenders contribute significantly to a person’s ability to repay loans and keep their health in check during the process.

Even if you are able to manage your repayments with so many different lenders, a debt consolidation loan can help improve your credit rating as one loan rather than five different loans is definitely going to have a positive impact on the algorithm that determines your credit score.

By Lyle MacLeod

© 2019 Lyle MacLeod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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