Low Interest Debt Consolidation Loans: How Do They Work?

June 24, 2011 by  Filed under: Debt 

What is meant by a low interest debt consolidation loan. In simple terms, it should pay off the full amount owed to each of the creditors. The borrowed amount has to an amount that covers all debts, or it defeats the purpose, which is to reduce the amount of money paid out each month.

The application process requires the borrower to provide a list of all creditors and proof of the amount owed to each one. In addition, the borrower will be expected to provide proof that they are over 18 years of age, are a US citizen, their employment status, address and mortgage or rent details.

Borrowers with security, such as property or other investments, will find it easier to obtain a lower than average repayment rate. However applicants without security, or not enough, will likely be turned down for these types of lending. Interest rates vary drastically from the low single figures up into the high double or sometimes even treble figures.

The reason why the repayment rates on a secured lending are lower than average is because the borrowed funds are spread over a longer repayment period. Funds secured against a property, may have the additional benefit of being tax deductible, but that will depend on individual circumstances. Most importantly, the borrower will save on the amount of money they have to pay for the loan, when compared against the amount paid to several creditors each month.

When used wisely, the low interest debt consolidation loan is used to pay off all creditors, leaving only the repayments each month. Unfortunately, if the borrowed amount does not cover the amount needed or the borrower decides not to clear some of the smaller debts for whatever reason. They may be in danger of defaulting in the future if their living costs overtake their income. That will mean spiraling interest rates and the possibility of losing their home or security.

In the first instance, if borrowers already have an outstanding borrowing, they should approach their current lender. They will be able to provide advice on the various options available and on future money management as being the way forward. It may not be a debt consolidation loan that is best.

The US Government and Financial Services Authorities in each State provide clear guidance and advice on debt management and how to find the right solution. There are also many comparison websites that allow a user to compare what the low interest debt consolidation loan providers have to offer.

Can low interest debt consolidation loans help you reduce your debt? Find out how low interest debt consolidation loans can help you consolidate your credit cards or loans. Apply online today.

Article Source:
http://EzineArticles.com/?expert=Brook_Evans

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