Ways To Get Consolidation Loans At Lower Interest Rates

Consolidation is a last resort for those who struggle to manage payments of multiple debts. It is easy to lose track of payments when loans are due on different dates. A missed payment or a late payment would mushroom the size of the debt due to interest penalties and late payment fees. However, most of the borrowers opt for consolidation when they have some debts to be paid off in fell one swoop and their budgets do not have wiggle room to discharge all of them.

Combining all outstanding debts into one large personal loan would make it much easier for you to tackle payments. A consolidation loan is a personal loan taken out to pay off all your outstanding debts in fell one swoop. Afterwards, you are only to deal with a personal loan. Because they are paid down over an extended period of time, you can easily budget around monthly payments. However, a debt consolidation loan in Ireland is not easy to qualify for.

There are certain conditions you need to meet to have a lender approbate your application. One of them is a decent credit report. Most lenders do not sign off on a consolidation loan application if your credit score is not up to scratch.

If any lender approves, they will charge very high interest rates. Bear in mind that credit card bills cannot be consolidated into a personal loan. You will have to apply for a balance transfer credit card. They also do not include secured loans such as mortgages and auto loans.

Before applying for a consolidation loan, first, you need to identify what kinds of loans you have that can be consolidated.

Tips for getting a personal consolidation loan at lower interest rates

Here are the tips you could qualify for debt consolidation at lower interest rates:

·         Keep your credit rating decent

Experts enjoin that you put in the application for a consolidation loan as immediately as you start struggling with payments. Falling behind on payments will lower your credit score, and your chances of applying for a consolidation loan will be bleak. Lenders usually fight shy of approbating the application when your credit score is not up to snuff.

You do not necessarily have to have an excellent credit rating. A fair credit score could also increase your chances of applying for a consolidation loan. However, you must remember that your credit report details play a paramount role in the decision-making rather than the three-digit score it displays. It usually is for the understanding of your own financial condition.

Lenders take into account your credit information and use their own formulas to calculate the risk. If you are found to be a poor credit borrower, they will likely repudiate your application. If they do not turn you down, they will charge you a very high interest rate.

Sometimes, your credit score is not abysmal, and yet you struggle to apply for these loans at affordable interest rates. This is because your debt-to-income ratio is too high. Remember that your credit card bills and other secured loans cannot be consolidated into a personal loan. Despite a consolidation loan, your debt-to-income ratio is recorded at 35% or more.

A high debt-to-income ratio will make your lender sceptical about your repaying capacity. It should not be more than 30%. The lower, the better.

·         Compare the market

Various lenders provide consolidation loans. While everyone would claim to be providing the most competitive deals, research is the key to obtaining the best loan rates in Ireland. There are some comparison websites that you can use to get an idea of the interest rates lenders charge for these loans. Comparing the cost is a must so you know the deal you are choosing is the most affordable.

However, remember that comparison websites only give details about interest rates. In reality, the annual percentage rate determines the total cost of the debt. In order to know annual percentage rates, you can visit the websites of a particular lender. Ask them if they could give you an estimate of the annual percentage rate.

You should try to obtain prequalifying letters from different lenders. Not only will you come to know who is actually disposed to lend you money, but you will also know the annual percentage rates they charge. Bear in mind that it is the estimated cost of a consolidation loan because the actual rate depends on a perusal of your credit report and income sources, which is possible only after you formally put in the application form online.

·         Secure if the borrowing amount is too large

Consolidation loans are generally unsecured because they do not last more than a year. The whole debt is paid down in fixed monthly instalments, so you will not have difficulty fine-tuning your budget to payments. However, lenders would be reluctant to approve your application if the amount is large.

There is a high risk of default. Lenders would likely presume that you could potentially fall behind on payments. Once you make a default, it will be more challenging to adhere to payments. Here comes the role of security.

If you secure your personal loan against a property such as your house, you will likely receive approval from your lender. Collateral mitigates the default risk. In case of a default, your lender has the right to repossess the collateral and liquidate to cover their money back.

You should carefully consider your repaying capacity when securing a consolidation loan because you will lose your house in case of default.

Does it make sense to apply for a consolidation loan?

While some lenders provide consolidation loans, it is always suggested that you carefully consider your repayment capacity. Even if your credit rating is stellar, you will most likely find these loans quite expensive. The total cost of the consolidation loan will be more than the total cost of the debt you paid off individually.

One of the significant reasons why people struggle to repay their debts on time is that they take it on beyond their repaying capacity. You should always check your financial condition before borrowing money. Ideally, your debt-to-income ratio should not be more than 30%.

If you have secured loans such as mortgages and auto loans, you should avoid borrowing for any other reasons, including emergencies. Because secured loans carry larger monthly payments, a significant portion of your income would be going into their settlement.

Financial experts suggest that you must build an emergency cushion so you do not have to turn to online lenders to borrow money. With an emergency cushion, you can prevent yourself from borrowing money every now and then.

The bottom line

Consolidation loans help you discharge your outstanding debts in fell one swoop. Later, you would have only one personal loan to pay down over a period of time, and you would not face much difficulty. However, you must have a good credit score in order to obtain consolidation loans at lower interest rates. If the debt size is too large, you may have to secure it too. As every lender offers different deals, it is always recommended that you compare the market. Research is the key to obtaining the most competitive deal.