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What is a Consolidation Loan and How will it Benefit you
Simply put, debt consolidation involves taking out one larger loan to pay off an existing debt.
Why would anyone want to take out a loan to pay off another loan?
The answer is simple:
A Consolidation loan allows you to make one payment every month, as opposed to making payments to many different parties. You will in effect be putting all your debt into one big pot, and making one monthly repayment, at a lower interest rate.
The loan is paid back at a lower interest rate when the debt is consolidated, because the loan that is taken out is secured against an asset. The asset acts as collateral for the institution lending the money. If you borrow the money and default on your payments, you can be forced to sell the asset to pay back the loan.
Debt consolidation can be a good way to pay off credit card debt. The interest payable on a credit card will be significantly higher than the interest on a consolidation loan. The interest payable on a consolidation loan can be up to 50 percent lower than credit card interest. The same can be said for administration charges on your various monthly expense accounts. Consolidating your debt will lead to savings on these accounts because you will only pay interest and fees on one account.
The institution that you lend the money from will also help you to structure the repayments so that they fit in with your budget. Your monthly income will have an effect on your monthly repayments each month and the total amount you will be allowed to borrow.
Loans can be secured or unsecured. A secured loan involves using your home as collateral for the loan. If you fail to make your monthly payments the bank can force the sale of your home. The advantage of a secured loan is that you will be able to lend a much larger amount than you would in the case of an unsecured loan.
An unsecured loan involves lending money without having to put up any collateral for the loan. While this protects your property from foreclosure the amount you will be able to borrow will be considerably lower. The interest rate will be higher because the bank has no security in the event that you cannot pay back the loan.
Know Loan, Loan More
Every time we hear the word loan, what is that first thing that comes in to your mind? What is does loan really mean?
Like all the other kinds of debts, a loan involves the redistribution of financial assets over time, among the two parties who are the lender ad the borrower. Usually it is the borrower that accepts or borrows an amount of money which is technically called the principal, from the lender and is the one responsible to pay back the same amount of money lend to the lender at an agreed time. The borrowed money is usually paid in return through regular installments, or partial installments; annually, each is installment has the same amount. The interest which is the cost provided to a loan offers an inducement for the lender to indulge in the loan. Each obligation and limitations in legal terms is compulsory by agreement- either written or verbal form- which can put also the borrower under the additional limitation such as loan treaty.
Below are the types of loans with the corresponding meaning:
Secured loan. A type of loan wherein the borrower promises some asset like a car or a house as a guarantee for the loan
Mortgage loan. This is a type of loan which is very common one that is used by most people in buying housing. The money is use to achieve the property in this kind of contract. However, the institution is rendered a security until the mortgage is paid fully. While if the borrower had fail to paid the loan, the right to possess again the house and sell it is in the hand of a bank just to cover the sums owing it.
Recourse note is another kind of loan that is especially use in limited partnership agreements. It is secured of course by a pledge of collateral, typically real property therefore considered as secured loan but for which the borrower is not personally responsible.
Unsecured loans. Unsecured loans are budgetary loans that are not secured over the asset of the borrower. These are may available loans from financial buildings under various marketing packages like credit card debt, personal loans, bank overdrafts, credit facilities and corporate bonds. In these forms, the applicable interest rate depends on the lender and the borrower. However, these may or may not be arrange by the law.
Therefore make sure you:
1.Always take a walk round the shop and look for the best loan fit in your situation. 2.Ensure that you have read all necessary paperwork and details about your loans. 3.Make sure that you can manage easily the monthly payment or you may find yourself sinking in financial trouble.