Debit consolidation is a loan obtained to return other assorted loans, which had been taken in an earlier period.
This kind of loan is normally taken to avail the lower interest rate or a fixed interest rate or to avail the simplicity of maintaining one single loan instead of many others.
With an aim to get a loan of this nature, you have to consider some important points.
The main intention of opting for a debt consolidation loan, a person can combine his entire debt payments in a single repayment mode.
Debt consolidation loans require a collateral security to be treated as a secured loan against the value of an asset, though the debt consolidation loan appears as an unsecured loan in place of several unsecured loans.
The collateral security in a debit consolidation loan is usually the house.
The process of mortgage is enforced on the house to secure a loan to a person.
The question of allowing a lower rate of interest comes only when there is the collateral security in the process.
The collateral security is the asset that is the house which is put to foreclosure in paying back the outstanding loan amount.
The entire risk is shouldered by the borrower with the collateral security without involving the risk to the lender and hence the lower rate of interest is allowed to the borrower in a loan.
In certain situations, debt consolidation houses offer discount on the loan.
In the critical stage of the debtor moving to the stage of bankruptcy, debt consolidators may purchase the loans with the discount.
Wise debtors can find consolidators for buying the loans at a discount and use the fund.
The strength of the debtor must be judged as to whether he is able to pay the debts or turn to bankruptcy in advance to take the decision to allow him any loan.
The use of debit consolidation is usually allowed to persons who have to meet their debts arising from the credit cards use.
The rate of interest in credit cards is very much higher than any other kinds of unsecured loans from any financial institutions.
Therefore, the debt consolidation here is allowable by the collateral security like a house or a motor vehicle.
The debt consolidation loan will come with lower interest rates due to the collateral security clause.
The loan allotment is profitable because the interest debit will be reduced and there will be enough funds to pay back the loan earlier.
The loan therefore, helps a person who pays higher interest rates on unsecured loans.
There are companies who take benefit of this system of debt consolidation loans to refinance a previous high interest loan.
The higher charges on fees for mortgages are also avoided by some companies with the advantage of debt consolidation loans.
Several deceitful companies take the disadvantage of debit consolidation by purchasing their loans on discount of affected persons when they are unable to refinance their homes and ultimately lose them.
There are both positive and negative sides of debit consolidation.