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Think about how many car dealerships exist in your area. Would you buy the very first car you look at from the first dealership you see? Most of us probably would prefer to shop around for a bit to make sure we’re getting the right vehicle for our needs with the best financing terms possible. Doing a little legwork online or in person allows us to compare different options before making such an important purchase.
Well, finding a consolidation loan is a relatively similar process in that there are different options out there from a variety of lenders. As this decision will impact your finances for years to come, it’s wise to take your time and examine the options in front of you before committing.
Here’s what to look for when choosing an online lender for debt consolidation.
Consideration #1: Income & Credit Requirements
A helpful first step is looking at loan options in terms of your approval chances. What are the two leading factors lenders will take into account when evaluating your application? Your credit score and your income. Some loans cater toward borrowers with high credit scores and high incomes; others specialize in low- or no-credit consolidation.
Here’s what you can expect to have to provide ahead of consolidation approval, according to Investopedia:
- Proof of income above qualification threshold
- Creditworthiness above qualification threshold
- Letter of employment
- Several months’ worth of statements for each current debt
- Letters from creditors/repayment agencies
a better use of your resources would be to seek out a lender with more flexible terms
You can save yourself the time and effort — and possible detriment to your credit score — by applying only for consolidation products for which you meet the minimum requirements or ideal borrower profile. If a bank offers an ultra-low-interest loan but has a high credit rating requirement in place, applying with a 590 is going to do you little good. Instead, a better use of your resources would be to seek out a lender with more flexible terms.
Consideration #2: Loan Terms
As tempting as it can be to stretch out the length of a loan to lower the monthly payments, this tactic can actually undo the money-saving efforts of consolidation
According to credit card debt consolidation – Freedom Debt Relief, tends to have a very wide range of terms — with interest rates anywhere between 4 to 46 percent and loan lengths anywhere from two to seven years. Clearly, there’s no standard, one-size-fits-all consolidation loan out there. This means you will benefit from doing your best to find and configure a loan that suits your needs.
A word of caution: As tempting as it can be to stretch out the length of a loan to lower the monthly payments, this tactic can actually undo the money-saving efforts of consolidation. Why? Because you’ll be paying interest stretched over a longer timeframe, which can end up costing you more — despite those tantalizing low monthly payments that look so great on paper.
it’s worth shopping around to figure out how you can spend the least amount of money to reap the most amount of benefit
Another central aspect of choosing the best loan terms is adding up the fees. As Time outlines, personal loans may carry front-end origination fees up to 8 percent — and even if they are not called such, this amount may be tacked onto the total amount you owe or embedded into higher interest rates. So, you can generally expect some kind of charge associated with borrowing the funds. However, not all consolidation loan fees are equal, so again it’s worth shopping around to figure out how you can spend the least amount of money to reap the most amount of benefit.
When you’re choosing an online consolidation lender, the two main questions to ask yourself are, “Which loans am I able to qualify for?” and “Which loan terms will help me minimize cost yet maximize advantages?” Then you should be able to choose the lender offering a product satisfying the best of both of these worlds.
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