In simple words, a debt consolidation loan means a loan taken to pay off earlier or existing loans and liabilities. This loan helps in refinancing the past debts of an individual, a business or a nation as a whole. In many countries, the government also uses it to pay off various corporate loans or to get over its fiscal policy. Such loans prove to be helpful when an individual or a particular entity wants to have a systematic way of paying off his entire loan only to a single debtor.

Process and Policy

The method of applying for a debt consolidation loan varies from nation to nation as per the country’s rules and regulations. In some countries, it may even vary from region to region depending upon its governance.

Usually, an individual debt comprises of housing loan, credit card bills, medical bills, and education loans, etc. On providing the listed set of documents, a debt consolidation loan is given by a lending and secured institution. The receiver of this loan can then pay off this loan in installments within the desired period (usually a month). These consolidations loans, however, charge a specific rate of interest, fees, points, etc. on the amount borrowed.

Eligibility

Not all individuals can apply for such a loan; there are certain constraints to it. The following factors are taken into consideration while approving these loans:

• The individual should be an earning person, and his salary should be little more than the total cost of his installment.
• He should be an adult and must complete a certain age as per the country’s rules and regulations.
• He should not be bankrupt which means that he should have a certain amount of savings and should be earning a favorable income to maintain a balance between his personal life and financial stability.
• Other factors such as the desired credit score, residential stability, job stability, etc. also matter in general but may differ from nation to nation.

Strategy

Many times, it happens that even after several attempts an individual fails to get his loan. In this case, he can follow the following ways to get one instantly:

• Online application – In the modern times, there is nothing that one cannot find online. The internet has access to almost each and everything today. You can search for online loan providers as there are many available in the market. Many times, online loan applications are straightforward, less documentation is needed, and approval also is quick; hence it’s not a bad option to apply online.
• Approaching local banks – Local banks are the one who usually does not ask for a lot of documents as the account holders are a part of their bank since a long time due to which the application process is applier friendly. The bank considers its account holders as loyal people as they have an association with the bank for a long time it grows the chances of approval of a debt consolidation loan.
• Securing loan against property – Though, this option is not recommended, but if one is urgently in need of a debt consolidation loan then he can secure his assets such as a house, vehicle, jewelry, etc. and apply for the desired loan.

Factors leading to a denial of debt consolidation loan

Sometimes it can happen that even after many attempts the individuals’ application for a debt consolidation loan is rejected. The following are some of the possibilities for the rejection of application:

• Low income: One of the main factors for denial may be low income. If an individual has a favorably low income to repay his debt amount his application can get rejected on his income basis. The approval of a debt consolidation loan needs certain income requirements, and if it does not meet its need, it’s denied.

• A bad or low credit score: If an individual has a poor score his application is rejected as debt consolidation loan requires certain criteria of credit score so that they can be able to grant the loan. Also, if the applier has a history of late payment of dues or no payment at all, there are high chances that the bank will reject his debt consolidation loan application. The lending institutions generally check the credit background of the applier and offer them a loan. 

• No security against loan: Sometimes it is vital for an individual to secure his loam against some of his assets so that the lending institution can recover their loss in case the applier fails to repay his debts. So, if the borrower does not have any asset to secure against his loan his application the bank can reject the loan. 

• High debt: Usually the lending institutions offer debt consolidation loan on a particular ratio against the income of an individual. In case the income of the individual does not match with the desired ratio and his debt ratio is too high the authorities deny lending debt consolidation loan to any such individual. 

• Stability factors: The lending institutions generally look up to certain stability factors when it comes to approval of debt consolidation loan. In this case, the bank considers the stability of the borrower regarding professional background and residential changes .E.g., if they notice that the individual is a frequent job changer, then there are chances that his debt consolidation loan application can get rejected.

From the above overview of the debt consolidation loan (DCL), on the whole, we can say that this is an excellent option for individuals who are stuck up in different loans. Debt consolidation loan offers a significant amount to the individuals so that they can pay off their several small loans. Usually, not much documentation is needed for applying for such loans, but you must keep certain factors in mind before applying for the same.

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