A loan consolidation is designed to pay off several financial
obligations with one loan. There are advantages and disadvantages
to this strategy. Other alternatives should be explored and you
should be aware of the long term effects of such a loan.
Loan consolidation: In a loan consolidation, a specific
amount of money is borrowed from a bank, credit union, savings
and loan or finance company to combine numerous small debts. This
is usually done in an effort to reduce the monthly payment due.
What are the advantages and disadvantages of loan
consolidation?
ADVANTAGES
The monthly payment on the consolidation loan may be smaller
than the total of payments on the individual loans.
Interest rate may be lower than on the individual loans.
DISADVANTAGES
Most debt consolidation loans are home equity or second mortgage
loans. Non-payment on this loan could result in the loss of the
home.
Because the lower interest rate is paid over a long period
of time, the dollar amount of interest paid is very high.
There is a temptation to borrow more than the amount needed
to pay the debts, resulting in greater indebtedness.
The above information should be understood to be a general
discussion of the subject matter and DOES NOT constitute
a legal opinion about the situation. For further information
please consult a qualified attorney.
