how does a consolidation loan work

Best answer

A debt consolidation loan is a way torefinance your debt. You will apply for a loan for the amount you owe on your existing debts and, once approved, you will use the funds to pay off your outstanding debts. Then you will repay the new loan over time.

People also ask

  • How do debt consolidation loans work?

  • Most debt consolidation loans are fixed-rate installment loans, which means the interest rate never changes and you make one predictable payment every month.

  • Does a credit card consolidation loan affect your credit score?

  • Three factors that positively impact your credit score when you consolidate debt through a consolidation loan are a lower credit utilization, better loan diversity, and improved payment history. By converting maxed-out credit cards into a consolidation loan, your utilization rate will improve as you make payments.

  • What is the average interest rate on a debt consolidation loan?

  • Interest rates on debt consolidation loans generally range from 5.99 percent to 35.99 percent. A higher interest rate will cost you more over the life of the loan than a lower interest rate. Every lender has different criteria for setting rates, so shopping around can help you find the best deal.

  • Can You consolidate secured loans?

  • Secured loans and term loans, like a car loan, cannot be consolidated into a new loan unless the original lender agrees. The reason being is that you signed a loan agreement with the original lender for a specified term and interest rate, and they have registered security on the asset you financed.

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