Not too long ago, lenders everywhere seemed to be in a frenzy handing money out to borrowers. In fact, it seemed almost more difficult to be rejected for a loan than to get one. These days, the situation is very different making the challenge for repaying debts hard. Thankfully, securing a debt consolidation loan with bad credit is easier than generally thought.
Exactly why these loans are so accessible is not hard to understand. The terms of consolidation are such that the pressures created by credit cards and other loans can be lifted. And by clearing existing debts fast, the borrower is better able to make the repayments.
Strangely, for a the lender, granting a debt consolidation loan has less risk, even though the money is going to a bad credit borrower. But while approval chances are strong, applicants still need to ask themselves 3 key questions before going through with the application.
Is Consolidation The Right Solution?
The whole idea of consolidation is that all of the relevant loan and debt balances are paid off with a single loan. And since the purpose of getting that loan is to address the credit problem, the chances of getting a debt consolidation loan with bad credit are very high anyway.
But there are other options, like bankruptcy, debt settlement or a payday loan. Bankruptcy can save a lot of money since a small percentage (if any) is paid to clear the debt, but there are long-term consequences too. A settlement makes clearing existing debts fast easy, with perhaps 40% of the debt repaid, but with less severe consequences.
A payday loan is much smaller and much more expensive than any debt consolidation loan. In fact, interest can be as high as 35% on the principal, and even 500% APR with the repayment term as short as 30 days. So, the sum borrowed is only going to be small.
Personal Loan or Company?
There is more than one source from which to secure a debt consolidation loan with bad credit. The most obvious is in the form of a personal loan from a reputable lender. These can be effective but remember that lenders have loan limits.
It might be fine for a debt of up to $50,000, but if it is more, it may be worth going to a debt consolidation company. These companies are willing to take on larger debts, but in return they will charge a fee on top of interest, and will take control on your finances.
When it comes to clearing existing debts fast, adopting the necessary financial discipline can still be a problem. But leaving the repayments in the hands of the company means there is no chance of failure. Taking out a large debt consolidation loan ($100,000) may end in frustration otherwise.
Are The Repayments Saving Money?
It seems a strange question, but once the repayments of a consolidation loan and your current debt outgoings are compared, the new deal should be significantly lower than the original sum being paid. Getting the right terms is important when seeking a debt consolidation loan with bad credit.
To a degree, the savings are to be expected, not least because the combined interest charged on multiple loans and credit cards is going to be higher than that charged on a single debt consolidation loan. However, there are other important elements to ensure greater savings.
For example, agree as long as repayment term as possible so as to keep the monthly payments low. Remember that clearing existing debts fast is great, but only if the financial pressure is eased in the process. With repayments reduced by as much as 50%, that is very possible.