The global economy crisis has ruined the finances of many Americans. Most of them are helpless in tackling their own financial issues. For people who are having bad credit, in order to prevent their financial condition and credit status from further deteriorating, a debt consolidation loan for bad credit appears to provide the answer. Many financial experts have positive viewpoints on this loan. However, does this special loan work best for everyone?
This loan is not a necessity for everyone with bad credit. Before applying for this loan, you are reminded to assess your financial situation carefully and look into your financial needs in detailed. The loan can be beneficial for some people but it may be a financial risk for others.
First thing first, let’s see which group of people is considered having bad credit score. In common, they are the borrowers who have defaulted on debts in the past. The borrowers who experienced mortgage arrears, County Court Judgments (CCJs), Individual Voluntary Arrangements (IVAs), bankruptcies, etc. are the suitable candidates for this debt consolidation loan.
The borrowers are advised to consolidate their multiple debts into one single loan. The debt consolidation loan assists them to replace their several small and big debts with a single debt. What a borrower has to commit is to make one single monthly installment for the “sole” loan on timely basis. By doing it consistently, the borrower can enhance his or her credit conditions systematically. The credit rating will be increased when prompt payment is made. Besides, the borrower is able to enjoy a lower interest rate if compared with the interest rates of their multiple debts.
This loan seems to be a perfect solution for people with bad credit. However, there are disadvantages too. When someone consolidates debts, he or she is in fact turning the unsecured debts into a secured debt. The lenders or creditors are usually provided with collateral. In most of the cases, home equity is utilized and this makes the refinancing more difficult for the borrower in the future.
In common, when a debt consolidation loan is obtained, the borrowers are offered an extension on their repayment period. It sounds good as the borrowers are able to have a more flexible repayment plan with lesser monthly commitment.
However, let’s think about it carefully. If you do a proper calculation, you may find out the truth. When the repayment period is extended, the borrowers are in fact delaying their plan to become debt free. At the same time, they are required to bear more interest over the longer duration. Again, if the borrowers miss their monthly payment or they make their payment late, they are charged with higher annual percentage rate. It doesn’t help to save cost.
To sum up, this financial solution is not perfect for everyone. Before applying for it, you are reminded to look through your personal financial ability carefully. You are reminded that taking up a debt consolidation loan for bad credit is in fact the same as borrowing additional money. Can you really afford to pay back?None found.