Consolidating loans can seem like a great way to manage debt, especially if you have more than one form of consumer debt. However, it’s important to consider all of the variables before making a decision that may not be best for your situation. Here are the main two things to consider while planning and preparing for debt consolidation.
Type of Loan
It’s important to know what kind of loan you will have. The kind of loan you have determines your terms, rates and agreements.
Secured. A valuable asset is attached to the loan as collateral in case of default. The terms of this loan are typically flexible and the rates are good.
Unsecured. There is no collateral attached and the terms and rates are fixed.
Fixed. No collateral; however, there are higher interest rates in the initial stages of the loan. These loans are preferred because the of their stable rates which aren’t affected by the market.
Variable. The rates may be lower than the fixed loan but it depends greatly on the market and economy.
Cost of the Loan
The amount that you ask to finance does not include the cost of the loan. The cost of the loan is the interest rate that is applied to the loan. When choosing a consolidation loan, look for loans that have low-interest rates with manageable repayment terms. Loans with extended repayment periods run the risk of companies increasing the insurance rate over time.
Additional things to consider before choosing a consolidation loan: prepayment fees, administration costs, and potential management or maintenance fees. Read the loan’s terms very carefully and be sure to ask questions about anything you don’t understand. Very often there are “terms within the terms” that you should be mindful of.
As with all loans and financial agreements, make sure you have a plan to repay the loan. Budget your money and finances wisely and plan for any unexpected costs or expenses that may occur along the way.
Contact Progressive Capital Funding today to learn how we can help with debt consolidation.