At some point in life, you may realize that your debts are overwhelming. You check your credit card balance or other consumer debts and feel like there is no hope that you will ever repay your creditors. People living with the burden of debt usually experience frustrations, fear, anger, and in worst cases, depression. Your entire family can suffer the impact of heavy debt as resentment and worry cause your loved ones to withdraw from each other. In such cases, debt consolidation loans are a viable option that allows you to take back control of your finances instead of filing for personal bankruptcy.
A debt consolidation loan is simply a tool that allows you to consolidate or combine all your unsecured debts including personal loans, credit card debts, and more into a single loan from one lender. The program works to simplify the debt repayment process by replacing all the monthly payments with a single lower installment. For instance, if you have five credit card bills, you can get debt consolidation Toronto to pay off these debts, leaving you with one monthly installment rather than five.
First-tier lenders such as credit unions and banks usually consider only the top creditworthy clients as eligible for consolidation loans. These customers can merge their unsecured debts through the financial institutions where they do business. For instance, if you have two unsecured debts through your bank and three unsecured debts from another lender, your bank can approve your consolidation of all your debts into a single loan.
Both first-tier lenders and second-tier lenders (finance companies) will also check your credit rating based on the data provided by TransUnion and Equifax before they approve your consolidation loan request. TransUnion and Equifax are Canada’s credit score reporting agencies.
These agencies allow lenders to view your credit score based on your entire credit history. The information provided can help lenders determine the level of risk you pose as a borrower. If you have a good credit score, it means that you pose less risk and there are high chances that you’re eligible for a consolidation loan.
Sometimes, debt consolidation can attract a high-interest rate. If your preferred lender realizes that you have a bad credit score and don’t have enough property to offer as security, the chances are that your loan request will not be approved by the top lenders. In case your credit score isn’t too low but poses a higher financial risk to the lender, your consolidation loan request will be approved but at a higher interest rate than for someone with an excellent credit score.
A consolidation loan with a high-interest rate is likely to do more harm than good. Therefore, it’s wise to consult a professional financial analyst to discuss the most viable way of handling debt. There are many important things you should consider before opting for a consolidation loan. First, you should think about your life needs and financial goals.