Questions to Ask Before Applying for a Debt Consolidation Loan

Questions to Ask Before Applying for a Debt Consolidation Loan

If you are juggling different loan repayments, you might be looking for more sensible options to clear the debt. Choosing a debt consolidation loan is one of the best ways to streamline your finances. As it combines all your outstanding debts into one single payment, you can also ease your mind.

But if you are not aware of debt consolidation and how it works, you may choose the wrong solution. You will also not be familiar with what questions to ask. Before signing a contract with the prospective lender, understand the basics and benefits of consolidating your debt.

Advantages of Debt Consolidation

With a debt consolidation loan, you will essentially combine your current obligations into one. So, instead of making multiple repayments every month to various lenders, you have a single loan schedule.

For example, you are currently repaying four different debts, amounting to $6000 at an average of 12%. You can choose to get a personal loan for $7000 or $8000 at a 6% interest and repay the other loans. This way, you will only be left with one loan at a lower interest rate.

Here are some of the basic benefits of debt consolidation:

  • Fixed interest rates
  • Competitive deals
  • Easy approvals
  • Quick funding
  • 100% digital processes
  • Flexible repayment frequencies (per week, fortnight, or month)
  • Clear all outstanding balances at once
  • Overall lower monthly payments

How to Research Banks for Debt Consolidation?

No single debt consolidation solution will suit every borrower. You must find a great credit provider that empathises with your situation. You can also get customised rates for your requirements with the right bank, starting from 4.99%.

During your research, you can ask yourself and the banks:

1.    What Amount Should I Borrow?

List all your debts and compare their term lengths and interests. When you get a clear idea of which ones hurt you more, you can classify them as good and bad debts. If the repayment period left is more, and the interest is less, you may let it stay.

But if the monthly payments make up a considerable portion of your income, those loans have to go. Arrive at an amount to borrow and use the bank’s online loan calculator for indicative rates. See how the rates impact your living situation and apply for only what you need.  

2.    What Competitive Interest Rates Do You Offer?

This is a question you need to ask the lender. For a personal loan, award-winning banks in the nation require you to have solid credit scores. Based on that, you can get interest rates as low as 4.99%. 

Various factors like the loan amount, repayment period, frequency, and the hard credit check can impact the rates. Hence, before finalising the paperwork, it is better to compare rates from several providers.

3.    Am I Eligible?

Almost every Australian citizen or one with PR can get a personal loan without any issues. However, there are certain conditions, such as:

  • Not be bankrupt
  • Have a steady source of income
  • Over 18 years of age

Other than that, banks have minimal lending requirements. But you also need to find out if a particular debt type can qualify for consolidation. Another advantage of personal unsecured loans is that banks don’t require security from you.

4.    When Can I Receive the Funds?

Most top-rated banks have quick approvals, meaning you may receive the funds within hours of the application. Besides, you can apply for the loan digitally, which is an easy-to-understand process.

A credible lender will clearly outline the instructions on how to complete the application. You can also expect them to be accessible with a dedicated and empathetic customer service team.

5.    Are There Any Additional Fees?

Some banks charge online fees when you apply for a personal loan. Called an origination fee or upfront advance, these can range from nominal to relatively high. But an enquiry or application alone shouldn’t cost you so much.

Look for a lender that has $0 as establishment charges. Furthermore, if you decide to make higher repayments and clear the loan earlier, you can incur extra fees. So, it is vital to find out if any hidden costs can impact your savings.

What You Should Know

Consider your monthly budget while deciding the personal loan term and maximum payment amount. The monthly payment will be higher if you choose six months (the lowest) as the repayment period. Likewise, an extended time of five years has a lower amount.

Also, try not to apply for more than one loan at a time because it will reflect in your credit history. Lenders doing the hard credit check may consider this a red flag. It can indicate that you are desperate for financing.

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