Even with the overall economic slump, India’s personal loan market grew by 28% y-o-y in 2020. However, the average ticket-size for debt also declined in the same period. It is in line with the predicted growth of 10% in the personal loan segment by the year 2025. Such growth figures for personal loans are indicative of the need for hassle-free credit, which is approved quickly.
A debt consolidation loan is one such popular type of personal loan option, which is useful for individuals servicing several dues at once.
What is debt consolidation?
Debt consolidation refers to converting one’s multiple dues being serviced into a single loan and servicing the consolidated amount instead of making multiple payments. It is a much more convenient option since borrowers do not need to keep track of due dates for several debts at once.
For instance, consider that you are servicing three existing personal loans and a credit card bill due simultaneously. The EMI due dates for each loan would differ, with the credit card bill following its due date as per the billing cycle.
With a debt consolidation loan, you can foreclose these personal loans and repay the entire credit card bill through a lump-sum payment and pay a single EMI for the consolidated amount instead of making multiple payments.
Still, one needs to know more about personal loan for debt consolidation before applying for the same.
Why is debt consolidation with a personal loan beneficial?
Consolidating your dues with such a loan is typically beneficial for the following reasons –
- Enables you to pay off multiple existing dues
One of the prime benefits of a debt consolidation loan is that it allows borrowers to close all existing dues. Rather than keeping the due date for each loan in mind, an individual would thus only need to remember the EMI payment date for this debt consolidation loan amount being serviced.
- Reduced interest burden
The interest burden from three different loans stands a good chance of remaining higher than the interest changes for a single due. For example, consider repaying two separate debts. First is a personal loan of Rs.3 lakh with a tenure of 5 years at 12% per annum. Another personal loan’s principal is Rs.2 lakh and interest charge is 13%. This loan’s tenure is also 5 years.
To consolidate your dues, you decide to avail a loan of Rs.5 lakh for 5 years at 12% per annum. Without consolidation, you would have paid around Rs.1.73 lakh as interest for the two separate loans. With a consolidation loan in place, however, you would need to pay around Rs.1.67 lakh as the interest.
- Shorten your repayment tenure
With a consolidated personal loan, a borrower can reduce his/her repayment tenure significantly. For instance, instead of servicing three different dues for tenures of 3, 4 and 5 years respectively, one can opt for a debt consolidation credit with a tenure of 3 years. Lenders like Bajaj Finserv bring these advances with a host of features and facilities as well to improve borrower’s convenience.
They also provide pre-approved offers to simplify and accelerate loan processing. These offers are available on a range of credit options, such as business loans, personal loans, and more. You can check your pre-approved offer by submitting your full name and phone number.
Eligibility criteria for a debt consolidation loan
Debt consolidation credit is an example of a quick personal loan. Thus, the eligibility criteria for such credits tend to be similar to each other. Here are some of the requirements –
- Applicants should age between 23 and 55 years.
- Next, one would need to check the credit score as well. A minimum credit score of 750 is necessary across most Indian lenders. One can undertake a few things to improve his/her personal credit score. Further, a score of 800 or more can help you secure a reduced personal loan interest rate.
- An applicant’s income should also match the minimum necessities, as mentioned by his/her chosen lending institution.
Knowing all about debt consolidation involves several other aspects. You should thus also appreciate the various reasons why you should apply for a personal loan for debt consolidation. An individual struggling to manage multiple dues at once should ideally give a thought to availing such a debt consolidation loan for enhanced repayment convenience. While ensuring a simplified repayment, it should also help lift the stress off one’s finances.
