Today, most of us take several loans to achieve various goals in life. But are these loans becoming cumbersome and difficult to manage? Debt consolidation can be a smart move in this case. But what is debt consolidation? Debt consolidation refers to the process of taking out a new single loan to pay off multiple debts. Here, multiple debts are combined into a single, larger debt, such as a loan, usually with more favourable payment terms, like a lower interest rate, lower EMI, or both. So, if you are saddled with different kinds of debt, you can apply for a loan against property for debt consolidation and combine all debts into a single liability and pay them off. If you have a good relationship and payment history with your bank, credit card company, or credit union, you can ask for debt consolidation.
When Should You Consolidate Your Debt?
Debt consolidation can be a wise decision under certain circumstances but may not always be the best bet. Debt consolidation is worth opting for if you have:
A Large Amount of Debt
Loan against property for debt consolidation makes a lot of sense if you have a large amount of outstanding debt from multiple sources. On the other hand, if you have a small amount of debt that can be paid off in a year or less, debt consolidation most likely is not the solution for you due to the fees and credit checks associated with this new loan.
Additional Plans to Improve Your Finances
Some loans like medical loans cannot be avoided while other debts may result from overspending or other financially dangerous behaviour. It is, thus, important to evaluate your spending habits before consolidating your debt and outline a plan to get your finances under control. Or else you may end up with even more debt than you had before debt consolidation.
A High Credit Score for a Lower Interest Rate
Making consistent, on-time payments and, ultimately, paying off the loan can help to improve your credit score over time and you are more likely to qualify for a debt consolidation rate that’s lower than your current rates. This can help you save on the interest amount.
Enough Cash Flow to Cover Monthly Debt Service
Consider consolidating your debt only if you have enough income to cover the new monthly payment. While your overall monthly payment may go down if you consolidate your debt, it may however not be a good option, if you are currently unable to cover your monthly debt service.
Advantages of Getting a Debt Consolidation Loan Using Loan Against Property
With different monthly payment dates for different debts, paying off multiple loans often becomes difficult. Debt consolidation is the easiest and hassle-free repayment solution to your problem. Debts mainly are of 2 types: secured and unsecured. Unsecured loans have strict eligibility criteria and higher interest rates. On the other hand, secured loans like loans against property offer a higher loan value with flexible eligibility criteria. The advantage of getting a debt consolidation loan using a loan against property is:
- Big ticket loans – Using a property loan, one can gain access to a hefty loan amount of 5 crores or more, which can be used to clear off consolidated debts of various sizes. The loan tenor also can be stretched as per the borrower’s requirement for easier EMI payments.
- Low Interest Loans – Since loans against property are sanctioned against high-valued assets that are pledged and secure in nature, they are lower interest loans. Your current loans, on the other hand, may be a combination of secured and unsecured borrowings having varying interest rates and may be adding to your financial burden.
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- Easy Eligibility – Eligibility criteria for a loan against property is simple and straightforward. These loans can be accessed easily and can be used to pay off the consolidated debt without too much effort. Being a resident of India, falling within the given age group, having a continuous source of income and high credit score can make you eligible for such loans.
- Documents to be Furnished – For easy debt consolidation using a loan against property, you just need to provide proof of identity, such as Aadhaar card/PAN card/passport/voter’s ID/driving license; address proof, such as electricity bills, phone bills, etc., the applicant’s pay slip for the last 3 months, last 6 months’ bank statement, Income Tax Returns proof, property documents, such as buyer agreement/original title deed/property tax receipts, etc.
- Faster Approval & Disbursal of Loan – Once all the documents are submitted and verified, eligibility criteria are met, the loan approval and disbursal happens within a few days. This helps consolidate your debts sooner and avoid fines on EMI dues on your other loans and debts.
- Flexi Loan Option – This facility in the loan against property allows you to make multiple withdrawals against a pre-sanctioned loan amount and pay interest only on the amount withdrawn. You can also opt to choose and pay interest-only EMIs throughout the loan tenor and repay the principal once the loan tenor ends. This helps to reduce the burden of the EMIs of loans and debts by almost half.
Final Words
Debt consolidation strategy is, thus, a strategy to rationalize expensive and unsecured debts, such as personal loans or credit cards outstanding with secured debt available at much lesser interest cost. So, a loan against property (LAP) for debt consolidation covers one’s outstanding debts and allows one to close costly unsecured loans, such as personal loans or credit card dues. It helps in reducing the overall interest and outstanding debt in a single step and this strategy is becoming more and more popular among individuals and businesses.
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