Poor credit can be a nightmare for people looking to fight debt. The average person can easily stack up different debts, which can range from student loans to car repayments, mortgage bills and credit card bills. Failure to pay off these debts on time can lead to penalties, and a worsening personal credit score.
In this way, a bad credit rating can result in long term financial problems, and overwhelming pressure to pay off debt loans. Given the current economic climate, these problems are affecting more and more people. Without the ability to pay off debts, a person may not be eligible for a new loan, and can find themselves stuck in a long term cycle of paying off monthly interest charges and penalty fees.
However, there are some solutions. Of these, perhaps the most important to consider for people with bad credit are Debt Consolidation loans. Compared to a standard loan, debt consolidation loans have many advantages, and are particularly essential for borrowers who have found themselves caught with multiple debts to repay.
By first looking at how a standard loan from a bank or a credit agency works, and the problems it can lead to, it is then possible to examine how a switch to a debt consolidation loan can help borrowers.
Standard Loans
Most loans are made on a secured or unsecured basis. A secure loan is made against a valuable asset, which can include a house mortgage or a car. The interest rate, or APR, for this kind of loan can be quite low, and can range from 4% on a good credit rating to 12% if a credit rating declines, or a second mortgage is taken out.
By contrast, unsecured loans are made without an asset in place. While the risk of losing that asset is removed, a borrower often has to pay a higher interest rate, and may find that monthly payments are larger. Unsecured loans can include credit cards.
Another option for a standard loan is a guarantor loan, where a third person provides the collateral for the borrower, and assumes the risk of paying off the debt if the borrower defaults.
In most cases, a standard loan can be negotiated and paid off without suffering significant debts. However, if payments are missed on a number of loans, the borrower can find themselves unable to keep on top of payments. In this case, a debt consolidation loan becomes another, more valuable option.
Debt Consolidation Loan Benefits
A debt consolidation loan basically involves taking out a new loan that pays off all other loans, and sets up a new, long term contract with a lower monthly payment schedule and a fixed or reduced APR. The benefits for the borrower include the elimination of late fees and additional interests, and the creation of a much simpler single monthly payment.
The balance repaid may be stretched out over a longer period of time, but the problems caused by fighting multiple loan repayments are removed. A debt consolidation loan consequently generates stability for the borrower, who no longer has to deal with a number of outgoing payments, but can focus on paying off a fixed monthly amount.
Being able to pay off this amount every month will mean that a poor credit history is gradually improved. With prudent financial management, the ideal result is that the new loan is repaid, and a personal credit history restored to good health, enabling the borrower to take out new loans. In this way, a debt consolidation loan can be an excellent solution to difficulties with standard loans and credit problems.
In this way, a bad credit rating can result in long term financial problems, and overwhelming pressure to pay off debt loans. Given the current economic climate, these problems are affecting more and more people. Without the ability to pay off debts, a person may not be eligible for a new loan, and can find themselves stuck in a long term cycle of paying off monthly interest charges and penalty fees.
However, there are some solutions. Of these, perhaps the most important to consider for people with bad credit are Debt Consolidation loans. Compared to a standard loan, debt consolidation loans have many advantages, and are particularly essential for borrowers who have found themselves caught with multiple debts to repay.
By first looking at how a standard loan from a bank or a credit agency works, and the problems it can lead to, it is then possible to examine how a switch to a debt consolidation loan can help borrowers.
Standard Loans
Most loans are made on a secured or unsecured basis. A secure loan is made against a valuable asset, which can include a house mortgage or a car. The interest rate, or APR, for this kind of loan can be quite low, and can range from 4% on a good credit rating to 12% if a credit rating declines, or a second mortgage is taken out.
By contrast, unsecured loans are made without an asset in place. While the risk of losing that asset is removed, a borrower often has to pay a higher interest rate, and may find that monthly payments are larger. Unsecured loans can include credit cards.
Another option for a standard loan is a guarantor loan, where a third person provides the collateral for the borrower, and assumes the risk of paying off the debt if the borrower defaults.
In most cases, a standard loan can be negotiated and paid off without suffering significant debts. However, if payments are missed on a number of loans, the borrower can find themselves unable to keep on top of payments. In this case, a debt consolidation loan becomes another, more valuable option.
Debt Consolidation Loan Benefits
A debt consolidation loan basically involves taking out a new loan that pays off all other loans, and sets up a new, long term contract with a lower monthly payment schedule and a fixed or reduced APR. The benefits for the borrower include the elimination of late fees and additional interests, and the creation of a much simpler single monthly payment.
The balance repaid may be stretched out over a longer period of time, but the problems caused by fighting multiple loan repayments are removed. A debt consolidation loan consequently generates stability for the borrower, who no longer has to deal with a number of outgoing payments, but can focus on paying off a fixed monthly amount.
Being able to pay off this amount every month will mean that a poor credit history is gradually improved. With prudent financial management, the ideal result is that the new loan is repaid, and a personal credit history restored to good health, enabling the borrower to take out new loans. In this way, a debt consolidation loan can be an excellent solution to difficulties with standard loans and credit problems.
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