How do debt consolidation plans differ from personal loans?
Funds organization for important events may take away your peaceful sleep. You may have planned for a huge wedding and to throw a lavish wedding reception. Or maybe, your dream honeymoon may drink up all your savings and still be incomplete. In such a case, a person usually opts for personal loans. But how is debt consolidation different than a personal loan.
Debt consolidation comes as a major use of personal loan options. You may consider debt consolidation as a personal loan option. However, personal loans are equipped to cater a lot of uses, of which debt consolidation is one.
So, practically, these two are not different. People usually misinterpret these two as two different options. Debt consolidation comes as one of many uses for a personal loan. A debt consolidation company can offer a good deal for a debt consolidation plan.
Understanding a personal loan
Personal loan comes as a loan for your personal expenses. It is a form of installment credit that can be used for your personal choice expenditures. Such as, a wedding is a personal affair and a personal choice. A loan being opted for the ceremony is a personal loan. You may also opt to fund your vacations using a personal loan. Similarly, you may use personal loans for debt consolidation as well.
There are usually no restrictions on how you opt to use your personal loans. You may use the amount for your medical expenses or maybe for your house refurbishment.
Personal loans are not secured loans. Unlike mortgages, they do not hold a property collateral for the loan amount being granted.
You are free to use the amount as your will allows. The repayment goes in the form of monthly installments. The first installment is typically due a month later of issuing the loan.
Understanding debt consolidation
Debt consolidation Company provides a personal loan that you have taken to waive off other debts. You may have opted for a debt consolidation loan to reorganize other debts. There is a possibility that you may have exceeded your credit card dues and need a loan for payment. You can use a debt consolidation loan in that case.
This decision to pay off your debts using a personal loan is the basic purpose of a debt consolidation.
You may use your debt consolidation loan amount to pay your credit card debts. You may also use it for the payment of your car loan dues. Also, you can use them to repay an already impending personal loan.
As the word consolidation suggests, it is a plan to replace your several debts with a single loan bill.
How can a debt consolidation plan be beneficial?
A lot of debt consolidation companies offer this loan. You may opt for the best suited plan as per your requirements. You effectively cut off the extra interest rates posed on different debts that you choose to pay using it.
However, unlike other loans, interest rates on debt consolidation loans differ person to person. This is because debt consolidation loan interest rates depend on a person’s credit score.
Also, opting for a debt consolidation loan can help improve your credit score. This is because it replaces your different debts for just one loan plan.
Nonetheless, if mishandled, debt consolidation loan can badly hurt your credit score. So, be very responsible with debt consolidation. Make payments right on time and enjoy a healthy credit score.