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  • Personal Loan for Debt Consolidation

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  • Personal loans are a sought after product due to their ability to fund various expenses. While for some it may be marriage expenses, others might need it for miscellaneous expenses such as fixing a car or repainting the garage. But a very useful feature of a personal loan is the ability to consolidate debts.

    Why Personal Loans for Debt Consolidation?

    Debt has a sneaky way of snowballing. Personal loans that are taken for the purpose of debt consolidation combine the various balances/debts into one single amount that will have to be paid on a monthly basis. Listed below are a few reasons why you should consider consolidating your debts by taking a personal loan:

    • Single EMI Payment: Keeping a track of various EMI payments are a hassle. If you miss repaying any one of your EMIs, you may have to pay a penalty and your credit score and relationship with the lender may be adversely affected. To avoid such hassles, you can consolidate your debts with a personal loan. Doing this will allow you to make one EMI payment every month, thus making repayments a whole lot easier.
    • Lower Rate of Interest: You may find that the interest rate charged for a personal loan is lower than the current interest rates that you pay. In such scenarios, borrowing a personal loan for debt consolidation is a viable option. That said, ensure that you do compare the interest rates charged by various lenders before applying to a specific lender for a personal loan.
    • Fixed Repayment Tenure: Lenders usually offer a loan repayment tenure between 1 year and 5 years for personal loans. You will need to repay the borrowed sum within this period. Knowing how much you will have to pay to the lender month after month can help you plan your finances and pay off your loan without any hassles.

    Features and Benefits of Personal Loans for Debt Consolidation

    A few key features and benefits of personal loans, which can make them an ideal option to consolidate your debts, are as follows:

    • Timely Approval: Most lenders approve personal loan applications in a timely manner, soon after they verify and approve your personal loan application and supporting documents.
    • Online Application: Many lenders, today, allow prospective personal loan borrowers to apply for personal loans online through their official websites. You can also apply for a personal loan for debt consolidation through BankBazaar, which will allow you to compare various personal loans offered by different lenders side-by-side on a single webpage.
    • Quick Disbursal: The loan amount that you apply for will immediately be disbursed into your savings bank account, as soon as your application is approved by the lender.
    • No Collateral/Security: Unlike in the case of many other financing options, you do not have to submit a collateral or security when borrowing a personal loan.
    • Flexibility: One of the key benefits of availing a personal loan is that you can choose any repayment term between 1 year and 5 years, as per your repayment ability. You can also opt for a loan amount that is sufficient to pay off all your debts.
    • Facility to Make Prepayments: Lenders who offer personal loans will allow you to prepay your loan amount during the loan repayment tenure. You may, however, have to pay a nominal fee when you make a prepayment. Making prepayments can help you pay off your loan quickly.

    Banks offering Personal Loans for Debt Consolidation

    A few lenders that offer personal loans for debt consolidation are as follows:

    1. Bajaj Finserv Personal Loan

    Bajaj Finserv’s Personal Loan for Debt Consolidation allows prospective borrowers to apply for a loan amount of up to Rs.25 lakh. The lender also offers pre-approved offers to select customers and a flexible repayment plan.

    Key Features:

    • The lender charges an interest of 12.99% p.a. A processing fee of up to 3.99% of the borrowed loan amount will also be levied.
    • The lender approves loans instantly, post verification of your documents and application form.
    • The loan amount that you apply for will be disbursed into your account within 24 hours of your documents being verified.
    • Minimal documentation is required to avail this loan.
    • You can opt for a loan tenure between 24 months and 60 months.

    2. HDFC Bank Personal Loan

    You can avail a personal loan from HDFC Bank to consolidate your debts. You can borrow any amount between Rs.50,000 and Rs.40 lakh and repay it to the lender within 60 months.

    Key Features:

    • The lender charges an interest rate between 11.25% p.a. and 21.50% p.a.
    • In addition, you will also be charged 2.50% of the loan amount as the one-time processing fee.
    • The lender allows prospective applicants to apply for its personal loan through online and offline channels.
    • The lender does not require applicants to submit a collateral or security.

    3. Citibank Personal Loan

    You can avail a loan of up to Rs.30 lakh from Citibank to consolidate your credit card debts and loan balances. The lender has a speedy loan approval process and offers flexible tenures that will match your repayment capacity.

    Key Features:

    • You can choose any repayment tenure between 12 months and 60 months.
    • The lender charges a fixed interest rate on its personal loans that start at just 10.99% p.a.
    • You will be charged a loan processing fee of 2% to 3% of the loan amount.
    • The lender allows borrowers to make pre-payments during the loan tenure.
    • You can apply for Citibank’s personal loan online.

    4. ICICI Bank Personal Loan

    If you require funds to repay your debts and consolidate the various payments into one, you can borrow a personal loan from ICICI Bank.

    Key Features:

    • You can avail a loan amount of up to Rs.20 lakh and choose a repayment tenure between 1 year and 5 years.
    • The lender charges an interest rate between 11.25% p.a. and 22% p.a. on its personal loans. Up to 2.25% of the loan amount plus taxes will be charged as the processing fee.
    • Pre-approved customers will receive the loan amount within 3 seconds.
    • The lender offers a hassle-free loan application process and prospective borrowers can apply for a personal loan through online channels.

    5. Axis Bank Personal Loan

    Axis Bank is another leading lender that offers affordable personal loans that can be availed if you wish to consolidate your debts. You can borrow between Rs.50,000 and Rs.15 lakh, based on your requirements.

    Key Features:

    • You need to submit minimal documentation when applying for this loan.
    • The lender charges an interest rate between 16% p.a. and 24% p.a.
    • You can select a loan tenure between 12 months and 60 months.
    • Loan applications will be approved in a timely manner.

    Will Consolidating Debts with a Personal Loan affect your CIBIL Score?

    If you have multiple debts, tracking your EMI payments can become a hassle. If you happen to miss paying even one of the EMIs within the due date specified by your lender, you may have to pay a penal fee. Further, there is a chance that missing your EMI payment could also affect your CIBIL score and make it difficult for you to avail funds in the future.

    To avoid such troubles, you should consider borrowing a personal loan and consolidating your debts with the borrowed loan amount. Doing this will make repayments significantly easier since you will only have to pay a single EMI on a monthly basis, thus reducing the chances of you missing EMI payments. Paying your monthly EMI as per the schedule specified by your lender will help you maintain a positive CIBIL score.

    Things to Consider When Taking a Personal Loan for Debt Consolidation

    While borrowing a personal loan to consolidate your debts is a great idea if multiple repayments are becoming a hassle, here are a few things you take into consideration before borrowing a personal loan:

    • Tenure of Your Existing Debts: You should check the tenure of your existing debts before borrowing a personal loan to consolidate them. If you find that you will be able to repay all your debts within a few months to a year, it makes sense to avoid taking a personal loan for the sole reason of debt consolidation.
    • Credit Score: Your credit score is one of the primary factors that will affect the interest rate that you are charged by a lender. If you have a good credit score, you will be charged a reasonable interest rate. On the other hand, if you have a low credit score, you can expect to pay a high interest. Borrowing a personal loan for debt consolidation is only a good option if you are charged a low interest rate. Given this, ensure that you check your credit score before applying for a personal loan. Only proceed with your application if you know that you have a good credit score and have a good chance of being offered a personal loan at a reasonable rate of interest.
    • Lender’s Eligibility Criteria: For your personal loan application to be approved, you will have to meet the eligibility criteria set by the lender. Therefore, it is in your best interest to check the lender’s eligibility criteria before applying for a personal loan. Lenders may have certain specifications with regard to your monthly income, work experience, age, etc. Ensure that you check if you meet these criteria before you apply for a personal loan.
    • Compare Interest Rates and Other Charges: The interest rates charged on personal loans can vary from as low as 10.99% p.a. to up to 24% p.a., if not more. It is, thus, highly recommended that you compare interest rates charged by various lenders before deciding which bank/financial institution to apply to.
    • Repayment Term: Personal loan applicants can opt for a loan repayment term between 1 year and 5 years. Given that you will be consolidating your debts and repaying the borrowed loan amount within this term, you should ensure that you assess your repayment capacity and opt for a suitable loan repayment tenure.

    Debt Consolidation vs. Balance Transfer – Which is the Better Option?

    Repaying a large debt is certainly not an easy task. If you are in such a scenario, you have two options – balance transfer or personal loan debt consolidation. Either of these options may be the right choice for you based on the nature of your debt.

    A balance transfer may work well for you if you have already borrowed a loan for which you pay a high interest rate. In this case, you can opt for a personal loan balance transfer to start saving on your EMI payments. Many banks and financial institutions offer personal loans for balance transfer at competitive interest rates.

    Now, if you have multiple loans, credit card debts, and other repayments, you can also opt to borrow a new personal loan and consolidate your various debts. In this case, you will pay a single EMI over the course of the repayment term.

    While both options may work for you, ensure that you carefully assess your financial needs, the nature of your existing debts, and your financial requirements before you arrive at a decision with regard to whether you should opt for a personal loan debt consolidation or balance transfer. Also, once you choose a suitable option, ensure that you create a repayment plan to pay off the borrowed loan amount within the loan tenure chosen by you.

    In conclusion, there are a number of banks and financial institutions in the country that offer personal loans for debt consolidation. These lenders charge a reasonable rate of interest and offer flexible terms that can make it easy for you to repay the borrowed sum. Ensure that you check your personal loan eligibility and credit score before approaching a lender for a personal loan.

    FAQs

    1. What is debt consolidation?

    This is a facility that allows you to take a single loan to cover all the loans that you’re currently handling. Repaying more than one loan at a time can make life very difficult. It is hard to keep track of multiple EMIs and pay them all in time. This facility pays off all these loans on your behalf so that you have only one loan to repay. In other words, it consolidates all your existing loans into a single loan.

    2. What do I need to apply for a debt consolidation loan?

    If you want to apply for this kind of a loan, you need to do the following:

    • Fulfil the eligibility criteria (age, income, and residential stability) required by the lender you want to take the loan from.
    • Submit your address proof.
    • Submit your ID proof.
    • Submit documents proving your income (bank statements, income tax returns, salary slips)
    • Submit any other document the lender requires.

    3. Is it safe to take a consolidation loan from an NBFC?

    Yes, it is safe to make use of this facility offered by NBFCs. These organisations are essentially lenders who function in the same manner as banks. But make sure you take loans only from the ones that are authorised and approved by the government to lend money.

    4. Will I be able to pay off my debts faster with a debt consolidation loan?

    The main advantage you will get from taking such a loan is that you will be able to have more control over your payments. Since you’ll have to make just one repayment every month, the chances of you missing a repayment are much lower. That said, you may be able to get a lower rate of interest. This will reduce your total loan cost and help you pay it off more conveniently. Also, if the lender allows you to prepay your loan, you can repay it faster.

    5. Can I use a consolidation loan to increase my future loan limit?

    Yes, you can make use of these loans to help you get better loans in the future. As you keep making repayments on time, your credit score will improve. A good score will help you get much better loan terms in the future including a higher loan amount.

    6. Can I prepay my consolidation loan?

    Yes, you can make prepayments if your lender allows you to do so. Most lenders in India allow you to prepay your loan after a stipulated time period (usually 6 months).

    7. How does prepaying my loan help?

    When you prepay a portion of your loan, the amount goes towards reducing your outstanding principal. This helps reduce the interest cost of your loan. Also, it will help you pay off the loan faster.

    8. Will have I have to pay an extra charge if I prepay my loan?

    Some lenders may charge you a fee for prepayment. This normally is a percentage of the portion that remains outstanding. Other lenders may charge you a fee based on the amount you prepay. Some lenders don’t charge you any fee for prepaying. This information is usually found in your loan document. If not, ask your lender directly before making a prepayment.

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