What Is a Debt Consolidation Loan?
Managing multiple debts can sometimes feel overwhelming. Keeping track of different repayment dates, lenders and loan terms can become difficult, particularly when you’re juggling other household expenses.
A debt consolidation loan may help some borrowers simplify the management of multiple eligible debts by combining them into a single loan. Whether debt consolidation is appropriate will depend on factors such as the total cost of the new loan, the loan features and your financial circumstances.
How does a debt consolidation loan work?
If you have several debts—such as a car loan, credit card balance or personal loan—you may currently be making repayments to multiple lenders.
With a debt consolidation loan, you apply for a new loan that, if approved, is used to pay out your existing eligible debts. Rather than managing several repayments, you’ll then make one regular repayment under your new loan agreement.
Before deciding whether debt consolidation is appropriate, it’s worth comparing the total cost of your existing debts with the proposed new loan, including the interest rate, fees, charges and loan term.
What are the potential benefits?
For some borrowers, debt consolidation may provide a simpler way to manage repayments.
Potential benefits include:
- Combining multiple eligible debts into one loan.
- Making one regular repayment instead of several.
- Having a structured repayment schedule with fixed repayments over an agreed loan term.
- Having one regular repayment date may make repayments easier to manage for some borrowers.
If you’re approved for a debt consolidation loan with Rapid Loans, there are also no early repayment fees, so you can repay your loan sooner if your circumstances allow.
What should you consider before applying?
Debt consolidation isn’t the right option for everyone.
Before applying, it’s important to consider:
- whether your existing loans have early payout fees
- the total interest, fees and charges payable over the life of the new loan
- whether extending the loan term could increase the overall cost of borrowing
- whether you’re comfortable providing an eligible asset as security for the loan.
Rapid Loans’ debt consolidation loans are secured against an eligible asset, such as a vehicle. If you cannot meet your repayment obligations, the secured asset may be at risk.
How do you apply?
Before applying, make a list of your existing debts, including:
- outstanding balances
- interest rates
- repayment amounts
- any early payout fees.
You’ll also need to gather supporting documents so your application can be assessed against our credit eligibility criteria.
If your application is approved, Rapid Loans will use the loan funds to pay out your nominated eligible debts. You’ll then make repayments under your new loan agreement according to the approved loan term.
Does debt consolidation affect your credit score?
Applying for a new loan generally involves a credit enquiry, which may temporarily affect your credit score.
Consistently making repayments in accordance with your loan agreement may contribute positively to your credit history over time, although individual outcomes vary
Should you consider debt consolidation?
Debt consolidation may be worth considering if you’re finding it difficult to manage repayments across multiple eligible debts.
Before making a decision, compare the total cost of your existing loans with the proposed new loan and consider seeking independent financial advice if you’re unsure whether debt consolidation is the right option based on your financial situation.
If you’d like to learn more about debt consolidation, our team can explain how the process works and answer any questions you may have.
Learn more about Debt Consolidation Loans, apply online, or call 1300 727 431 to speak with one of our loan consultants.
Disclaimer: This article provides general information only and is not financial advice. It does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for your circumstances and seek independent professional advice if needed. All applications are subject to Rapid Loans’ credit eligibility criteria. Approval is not guaranteed. Fees, charges, terms and conditions apply. Rapid Loans Pty Ltd holds Australian Credit Licence Number 388847.