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Are You Ready to Consolidate Your Loans? Be Informed Before Making Any Decision
Small and medium sized businesses can get into the debt trap quite easily. Serious financial troubles can disrupt the flow of the business, and business owners may find themselves stuck in a mess, filled with stress, lawsuits and more harassment for being in unmanageable debt. You may ponder as to what caused your debts to go out of hand. It did not happen suddenly or overnight. Accumulated debts which once were manageable may go unmanageable for many reasons.
What makes business debts unmanageable?
There can be many reasons behind failing to manage your business loans and debts. If the business goes down, and you struggle to generate the required amount of revenue, then your debts may get unmanageable. If you have too many loans in many accounts, some to a high interest lender, some to your business credit cards, and again some to other medium and low interest lenders, then also you may get puzzled in absence of a good loan management and account system for the debts. Another prominent reason is that if you were always dependent on credit cards for cashless shopping, you may suddenly find that all your business credit cards have been blocked for utilizing the full credit limit.
Forgetting the due dates, sluggish business performance and low revenue are obvious reasons. And another reason can be the sudden or gradual realization that you are simply paying too much for loans, and most of your earnings are getting drained on EMIs of loans. If you are in any of these problems, then a loan consolidation or a consolidated loan can be a great solution for you. All that you will have to check is that if the loan is right for you in several ways.
What to look for in a consolidated loan?
Debt consolidation is a great way to get out of a sticky financial mess. It combines all your dues and debts into one single loan account with a large loan. With the help of debt consolidation companies, you can pay off all your smaller loans, and deal with a single large loan. But before you apply for a consolidated loan anywhere, keep in mind a few very important points that you should check first.
- How many of your existing loans are of high interest rates?
- How many of your loans and debts are really bothering you for late payments, creditor calls, and penalties on EMIs?
- Will consolidating them together be of any help?
If you have a number of loans from multiple lenders or a few loans with high rate of interest, you may consider the option of debt consolidation.
When can a consolidated loan help you?
When consolidating your debts, you should not rush into the first loan you get. You should take your time and evaluate your options first. There are factors to consider such as how much you will be paying every month as EMI. If this amount is lesser than the amount you are paying now, and has a comfortably long tenure, which makes payment easy for you, and the EMI is just at par with your current spending, you should go for it. This way you will have the assurance that you will be able to pay off the loan within the given time. There are benefits that you can expect from consolidating your loans. Some of the benefits that you can aim at include:
- All your old loans, which were of high interest rates and made you into a defaulter, or were ruining your reputation, can be closed at once with the new consolidated loan.
- You get one single loan account to take care of, where you pay the monthly EMI only once and stay sorted with your debt.
- The creditor calls, late payment and penalties all ruining your credit score can be stopped with this.
- You are at ease with the new term and conditions and interest rates.
If you see that you have all these benefits from your consolidated loan, you may pretty well enter the contract. However, reading and understanding a contract is crucial. And here is how you detect flaws in a contract
How to evaluate the new consolidated loan contract?
While you are checking reviews before consolidating your bills, you must keep in mind that reading the loan contract is vital. If you are not accustomed with the technical terms and finance related jargons, you better get help from a professional financial advisor to help you out. Things to check are as follows:
- The penalties if you miss an EMI
- The foreclosure clauses
- The penalty of prepayment and early closure of the loan
- Processing fees and hidden charges
When you get to know all of them, and are convinced that you are entering a better deal from most or all respects, you can continue with your application process.
How the loan application will affect your credit score?
Your credit score or rating gets affected during a hard enquiry by the loan disbursing company. Many lending companies will perform a soft enquiry, and will approve a loan easily. A soft enquiry does not affect your credit score. But if the lender does a hard enquiry, and you already have a low credit rating, you may have to face rejections from some lenders, which may delay the approval of the consolidated loan.
The final choice will always be yours and you will decide if you want to consolidate your debts or not. But when you are messing it up with a lot of bad debts, you should consider the option and get rid of old debts for a better financial future.
