20 Aug Consolidation Loan Pros and Cons

If you’re considering refinancing your debt, you may be wondering about the pros and cons of consolidation loans. Like every sort of finance, debt consolidation has its drawbacks. We feel that the benefits of one monthly payment that costs far less outweigh its cons. In the end, the pros and cons of consolidation are specific to your circumstances and how this personal loan fits into your fiscal life.

Debt consolidation pros are that you save on interest, make lower payments, save on admin fees, won’t have to worry about the consequences of defaulting, and you’ll enjoy regular payments. On the other hand, you’ll have a longer repayment term depending on the terms you negotiate, the intimidation factor of a large loan, and the matter of clearing up your credit score.

Debt consolidation consolidates all your previous debt into one loan that you use to pay off all your debt at once. As it’s a personal loan, you’ll enjoy access to lower interest rates and monthly repayments, as well as the expertise of our finance experts.

Read on to discover the benefits and drawbacks of debt refinancing.

Benefits and Drawbacks of Consolidation Loans

Debt refinancing has its benefits, like; lower interest rates, lower payments, one admin fee, not defaulting, and peace of mind. On the other hand, you might be nervous about the longer repayment term (though this may also be a plus), the large loan amount, and rebuilding your credit score.

Pros

Let’s discuss the pros of debt refinancing.

Lower Interest Rates

As consolidation loans are personal loans, you’ll secure a lower interest than your initial credit. This is because unsecured and revolving credit often have high interest rates as a means of default insurance for creditors. Lending unsecured and revolving credit is a huge risk, and tacking on interest is a way of making a profit on what they lend you.

Consolidation loans offer lower interest, making your overall loan payments cheaper and more budget-friendly.

Lower Payments

Because of your longer repayment terms, you’ll be over to pay off the loan over an extended time, making your repayments lower.

One Admin Fee

All those seemingly little hundreds add up, right? It’s R100 for this credit card, R150 for that store card, and R200 for your FNB revolving credit. The more credit you’ve taken out, the more administration fees you’ll likely pay for the benefit of enjoying an airport lounge when you fly to Johannesburg. Is it really worth it?

With debt consolidation, you’ll pay one low admin fee, grossly reducing your financial overheads.

Peace of Mind

Consolidation loans offer peace of mind because you’ll only have one monthly payment to worry about, not four or more. You won’t have to forget your debt repayments ever again. Moreover, debt refinancing means you won’t default on current payments or worry about late payments anymore, which will bring up your credit score.

Cons

Consolidation loans are not without its drawbacks. Luckily, there are easy solutions you can implement to mitigate its effects.

Longer Repayment Term

For some people, a longer repayment term can be a huge plus. For others, paying off debt over a long time can make it seem like being in debt will never end– and no one wants to feel like that.

The solution? Use the money you save to make additional payments toward your consolidation loan. This will expedite the repayment process.

Large Loan Amount

The larger your debt, the larger the consolidation loan will be. Taking out another loan may seem frightening, especially if you already carry the weight of not being in good standing with your existing creditors.

Remember that consolidation loans are meant to pay creditors back and are part of the debt help system. It’s there as a means to help you pay less and reduce your debt amount faster. If you have specific worries, be sure to speak to one of our team members, who can guide you through the process carefully and address your concerns with kindness.

Rebuilding Your Credit

Whenever you take out credit, you’ll see a temporary dip in your credit score. After a while, especially after you’ve sorted out what you owe your previous lenders, your score will rise again.

Now that you understand the pros and cons of consolidation loans, it’s time to take action. Contact Debt Refinance today and enjoy the benefits of debt refinancing. Consolidate all your loans into one monthly repayment.