Debt consolidation is a financial way for borrowers to avail a large loan amount to close their other outstanding debts. It is quite common for individuals to settle short-term debts such as multiple credit card bills and consumer debts, to manage their existing credit obligations which are earning high interest. It also makes it much easier for individuals to take on new financial investments or apply for more urgent loans that they might need urgently.
Debt consolidation through a mortgage opens a new line of credit by mortgaging your property. It provides sufficient capital to pay off many debts in one installment each month. This essentially means that larger debts can be effectively cleared from a single loan source. Since this type of loan is used by pledging a property as collateral, the principal secured is a large amount and the repayment terms extend longer, making it easier to pay EMIs.
Multiple credit obligations are likely to earn more interest because each is billed separately. Loan against real estate debt consolidation is available at lower interest rates, which helps keep the total amount payable within a reasonable range.
Keep the following tips in mind when you want to consolidate your current debts:
1. Know your real debt
Assess your total outstanding debt so that you can assess the exact amount you need through your Property Sanction Loan to adequately close all other outstanding loan accounts.
2. Explore credit options
Once you have established the required loan amount, you need to choose the best type of loan based on interest rates, term and loan amount. Some of the popular forms of debt consolidation methods are:
• Loan on property
When you consolidate your debts, you have the option of choosing between a secured or unsecured loan. In the case of a property loan, you get a secured loan that guarantees a higher loan amount and a long term to make repayments on the pledged collateral. The loan against real estate interest rate is competitive and gives you the opportunity to repay your loan without depleting your finances.
Personal loans offer unsecured loans with no end use restrictions, making them good debt consolidation tools when paying down debts of small amounts of money. Most financial companies offer loan amounts large enough to cover all debt consolidation expenses.
A top-up loan is usually given to existing customers with their home loans, providing a secure credit alternative. The terms generally depend on the ability to repay your loan and the value of the property, among other factors.
• Loan against securities
This is an overdraft facility fixed on the value of your securities. It is suitable for those who have large long-term investments in the form of stocks, equity mutual funds, insurance policies, etc. These can be used for low cost funds.
3. Credit score
A good credit score will always be very useful to you. It will provide you with personalized loan facilities at competitive rates and conditions.
Debt consolidation saves you from having to keep track of multiple payments, EMIs, due dates, etc. There are many financial institutions that offer home loans for debt consolidation. Choose the one that suits your needs and repayment capacity. With no end use limitations, LAP can be the right way to consolidate debt when looking to manage high value liabilities.
Disclaimer: This article was published in association with Bajaj Housing Finance Limited and was not created by TNM Editorial.