Loan Consolidation: Pros and Cons

Good morning daily rant bloggers.  It’s beautiful morning, the sun is out, and the birds are singing.  This looks like it will be a good day.  My topic for today’s rant is about loan consolidation options with the benefits and the disadvantages.  Who doesn’t want to save money?  However, there could be obstacles preventing you from doing that.  Maybe you are going through a terrible divorce, or a loved one has passed away.  I am here to let you know there are different options out there for you.  You need to choose the option that is right for you.

What is loan consolidation?  Well I will describe it like this.  Let’s say you have 3 different credit cards that you pay each month.  You might also have a loan out through a financial company or a bank.  What loan consolidation does for you is they take what you owe  on all of your little debts, and they combine them all together.  Therefore, instead of paying 5-6 different payments each month, you will only pay 1.

One option for a consolidated loan is to combine all of your smaller debts, and let a car or even a house stand good for the loan.  This is called a secured loan.  These types of loans generally have a lower interest rate because the goal is to save the customer through a decrease in interest rate and a lower monthly payment, which is easy to manage.  These are two of the benefits of secured loans.   If you consolidate your home and obtain a mortgage, the interest paid on mortgages is tax deductible.  Another benefit of getting a secured loan is that these loans are easier to be approved for because there is little risk to the lender.

The cons of a secured loan consolidation is that when you put something up for collateral, such as your home, car, life insurance, etc. you are allowing these properties to stand good for this loan.  If something comes up, and usually at one point and time it will, if you find yourself in a state that you cannot repay the loan, the items that stood good for the loan can be repossessed.  A second con of secured loan consolidations, is that you may end up paying longer as compared to paying off small balances on credit cards, which you could probably pay off in a shorter amount of time.  Let’s say you have 3 credit cards with small balances, if you choose to put these in a secured loan consolidation, instead of being able to pay those credit cards off in 2 years, you could end up with a term repayment like 5 years.

I will now talk about unsecured loan consolidation loans.  Unsecured loan consolidation loans do not require any property you may own to be used as collateral.  So there is no risk to the items you own.  Even though the interest rates may be higher than secured loans, the interest rate is most likely smaller than what you pay on 3-4 credit cards.

One of the cons of unsecured loan consolidations is that they are tougher to obtain than a secured loan.   Since you are putting no tangible items up for collateral, you are offering only your promise to pay back.  Therefore lenders are at a greater risk.  A person looking for an unconsolidated loan must have perfect credit with a long credit history.

There is also called psychological pros and cons of loan consolidation.  Yes you will have only one payment which is usually lower than what you paid out before, however, this may lead you to a misconception  about your credit.  Some people take out more debt before the loan consolidation loan is paid back.  This makes a continuing cycle as you had before the loan consolidation.

Okay bloggers I hope I have given you something to think about before you enter a loan consolidation loan.  There are several advantages, but there are also disadvantages of these types of loans.

Let me know what you think about this.  You or someone you know may have gotten a loan consolidation.  Tell us if this was a good thing or a bad thing for that person.  I can’t wait to hear from you!

Until my next blog,

Good day friends!!!!!

 

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