10 May Personal Loans versus Consolidation Loans

A lot of us wonder about the difference between consolidation and personal loans. Do they serve the same purpose, do they affect your finances differently? If so, why? You could take out either loan to consolidate your debt, but both serve different purposes. A consolidation loan is just a loan you use to pay off multiple debts at once with a different name than a personal loan. Read on for the key differences between these two loans and their real-life applications.

Personal loans

Personal loans are loans you take out for personal purposes– it’s in the name. People take out these loans to pay for expenses like medical bills, car repairs, weddings, vacations, and even presents. You don’t have to use the loan for a sole purpose, you can use it for anything you would like, really. However, some lenders put limits on how you can use the funds. For instance, you may not be able to use the money for educational expenses or to make investments.

This loan is a type of instalment loan (a loan you pay back in small parts). You’ll get the entirety of the loan upfront, then pay it back over an agreed period of time using a prescribed interest rate and terms. The instalments are typically month to month.

A lot of personal loans are unsecured, which means you receive access to them solely based on your credit history and score.

It’s good practice not to use personal loans for luxury expenses, like designer clothes or fancy cars, as this might impact your ability to meet living expense obligations later.

Consolidation loans

Debt consolidation loans are just personal loans you use to pay off all your debts at once. You should note that all consolidation loans are personal loans, but not all personal loans are consolidation loans. A lot of lenders often market these loans as loans with potentially lower interest rates, which attracts the masses– because who doesn’t want to pay off their debts with lower interest rates?

Benefits of consolidation loans

These are the benefits of consolidation loans:

• You can replace multiple bills into one monthly payment
• They usually have fixed interest rates
• Sometimes you can get a lower interest rate, saving you money in the long run
• Lower monthly payments– but this can depend on how long you take to repay the loan and your interest rate.

Personal loans, like consolidation loans, can impact your credit score depending on whether you pay on time or default, similar to any other sort of credit.

If you need a consolidation loan, don’t hesitate to get in touch with Debt Refinance! Let’s refinance your debt and simplify your finances together.