Loans are a good way of meeting your financial needs but they come with a burden of paying the interest rates. When you take up a loan facility, you anticipate that you will be able to repay the amount within the stipulated timeframe. Whereas this is possible, at times, uncertainties happen which compel you to make late payments and start incurring hefty penalties for loan delinquencies. Although it is not your desire to pay more in loan principal and interest, this can occur if you have to face penalties for late payments.
The most notable are credit card loans which can carry penalties of up to 15% APR from one missed payment. One way people with loans attracting high interest rates can do is to refinance. Loan refinancing simply implies obtaining a new loan that has new but lower interest rates. You can get a new loan with better terms of payments something that helps you to repay the debt more comfortably.
There are many debt consolidation companies you will find out there, and they can help you out in consolidating your loan. If you have a credit card debt, a personal loan and other types of loans that you are servicing, they can cause daunting moments for you. From a debt consolidating company, it allows you to start paying off your debt through one loan that you take from the company.
What this means is that you do not owe your previous creditors and instead you owe the debt consolidating company. The company deals directly with the lenders and you now make a monthly payment to the debt consolidating company. If your previous loans are attracting very high interest rates, and you get a lower APR from the consolidation company deal, then this may be a good option.
One, you eliminate the challenges you face when dealing with your creditors and two, you lower the interest rate meaning that you have increased cash flow. However, you need to be very cautious when you engage with debt consolidation companies. When you sign the contract for the debt consolidation plan, you cannot back off. It is advisable that you get every clause of the refinancing contract before you sign it.
The interest rates and fees could increase the costs of these loans and particularly for people with poor credit. Because it is likely that many people with debt problems have poor credit score, it means that they are subjected to high APRs and fees and these charges take a big chunk of their total cash flow every month.
In addition, although a consolidation loan may have a low APR; this rate could actually be overshadowed by other risks making the new loan costly to pay. When you deal with a debt consolidation company, you may end up with a repayment plan with a longer term. It means that you are paying low interest loan but for long period of time. This could amount to larger amounts in the long run meaning that you actually end up paying more than you anticipated.
With the longer payment term, you do not know what might happen somewhere down the line in course of the repayment plan. You may miss some payments, something that could attract very costly penalties, which increase the interest rates heftily. Another thing you need to check when you sign for a loan consolidation program is to leverage the use of credit on your credit cards as this could drive you to the same amount of debt.
In order to ensure that you get low cost debt consolidation plan, you may consider non profit debt consolidating companies. These companies will review your debt situation and offer a free debt counselling session. They also prepare income and expenditure analysis and based on how much you can afford to pay, they then negotiate with your creditors or debt collection agencies. Non profit debt consolidating companies are not free as the name may suggest but they offer low cost services compared to profit debt consolidating companies.
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