Consolidation Loan

Consolidation Loan is a part of Debt Consolidation. These types of loans are for those who are in a deep debt by several loans.

Definition: Consolidation Loan -

- Debt consolidation loan entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan.

Debt consolidation loan can simply be from a number of unsecured loans into another unsecured loan, but more often it involves a secured loan against an asset that serves as collateral, most commonly a house. In this case, a mortgage is secured against the house. The collateralization of the loan allows a lower interest rate than without it, because by collateralizing, the asset owner agrees to allow the forced sale (foreclosure) of the asset to pay back the loan. The risk to the lender is reduced so the interest rate offered is lower.

- A manufactured home loan obtained that combines payments of separate bills into one loan payment.

- combining of several different debts to create one monthly payment, typically more affordable and sometimes with a lower interest rate overall.

- The replacement of two or more loans with a new single loan, often with a lower monthly payment and a longer repayment period. Also known as a consolidation loan or debt consolidation.

- combining several debts into one loan usually to reduce the annual percentage rate or the dollar amount of payments made each month, extending them over a longer period of time.

- Allows the borrower to combine a number of existing loans into one loan. Borrowers typically consolidate loans to lower monthly payments.

Explanation: -

Say for Example, you are in a deep debt of several loans. Such as you have 5 credit card bills out standing, you have your car loan remaining, on the top of this you have taken education loan for your children plus you have taken several personal loans.

Now you can’t pay all of these debts because combine payment of all of these debts goes beyond your monthly Income. So What you do is, You go for a Debt Consolidation.

Your Debt Agent negotiates with your lenders and convert all of your loans into a Single, low interest, long term loans backed by your Home (Most Commonly). This is known as Consolidation loan or Debt Consolidation.

Well, according to some Finance Gurus (Dave Ramsey), Consolidation Loan (Debt consolidation) doesn’t work for you even though the maths behind it works because you haven’t change your behavior. The main reason why Debt Consolidation doesn't work is, people have bad financial spending habits of taking loans.