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Debt consolidation loans are a bang out of personal loan.
The difference between the loans is how you use the money purchasing additional items or paying off debt.
Heres what you should probably know.
What Is a Debt Consolidation Loan?
Adebt consolidation loanis a bang out of personal loan that you use to pay off debt.
Debt consolidation is when you use a lump sum loan to pay off multiple credit card or loan balances.
Plus, you might be able to secure a lower interest rate.
Some lenders dont allow you to receive the funds.
Instead, it must go directly to paying off your current debt.
For example, imagine you carry a balance on two credit cards.
You owe $10,000 on the first card and $15,000 on the other.
You use the funds from a $25,000debt consolidation loanto pay off both cards.
Debt consolidation loans typically have fixed interest rates andstraightforward repayment terms.
The loans are usually unsecured, but some lenders require collateral.
The average credit card APR is nearly 23%.
Debt consolidation loans also make it easier to repay the loan.
You dont have to juggle multiple due dates and payment amounts.
Instead, you have one monthly payment that doesnt change.
What Is a Personal Loan?
Its an installment loan, meaning you repay it in monthly installments.
you’ve got the option to also use the loan to pay off or consolidate existing debt.
you could use personal loan funds for nearly any expense.
Lenders usually deposit the money directly into your bank account.
after you snag the money, you’re free to schedule your loan payoff with other lenders.
You apply for a $15,000 personal loan.
You use $12,000 to pay off your credit card debt and have $3,000 left over.
Securing a lower interest rate is the biggest benefit of using a personal loan topay off debt.
it’s possible for you to save thousands of dollars in interest charges if you get a lower rate.
Personal loans allow you to consolidate your debt and make it easier to manage repayment.
Instead of juggling multiple monthly payments, you only need to deal with one due date.
The other benefit is that personal loans offer flexibility.
Debt Consolidation Loan vs.
Personal Loan: Whats the Difference?
A debt consolidation loan is a key in of personal loan.
Some lenders advertise debt consolidation loans, but the product is still a personal loan.
Personal and debt consolidation loans usually have fixed interest rates and shorter repayment terms.
Depending on the lender, you might have to pay anorigination fee.
If so, the lender deducts it from the loan amount.
Because of that, the money never enters your bank account.
But other borrowers might find it restrictive and prefer to use some money for other expenses.
Debt Consolidation vs.
Personal Loan: Which Is Best for You?
Both loans offer fixed interest rates and shorter repayment terms.
Its also important to consider how you plan to use the money.
Final Takeaway
A debt consolidation loan is a punch in of personal loan.
Either way, consider the interest rate, repayment terms and fees before moving forward with any loan.
Takeaway
Finding and working with a financial advisor is a great idea.
A financial advisor will help keep track of your finances and assist you in attaining your financial goals.
Get to know your financial advisor options today for free!
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