Debt Consolidation: How Does it Work?
There are many different types of loans a person can take out, from many different types of lenders. For example, a college student can take a student loan from the government, from a private lender, or from the bank, whereas a new homeowner can take a mortgage out from a whole handful of different providers. Each type of loan and lender has very different payment terms, interest rates, and requirements for eligibility.
Taking out a loan for your business is no different. There are so many different types of business loans, it can be intimidating to know if you’re choosing the right one. In this series, we will talk about the 5 main loans you can take out for your business. Today we will cover one of the most attractive loans taken out by business owners: Debt Consolidation.
What Is Debt Consolidation?
Taking a loan for the purpose of Debt Consolidation is a move made by many businesses. Often times, business owners must take out multiple loans over the course of many milestones throughout their business’s life. Because they have not taken these loans out all at once, they often come from different lenders and come with different interest rates and payment terms. Taking out a loan for Debt Consolidation entails taking out a loan for the sum of all of your multiple loans, combined, using it to pay them all off, and then continue paying off this one, individual loan to one specific lender.
Who is Debt Consolidation Best For?
Debt Consolidation is a great move for business owners who find themselves with debt coming from multiple loans, especially those with high interest rates and tough payment terms (i.e. not enough time, payments are too frequent, etc.). Even if the payment terms are alright, it can be helpful to condense everything into one single monthly payment that goes to one place, instead of having to keep track of each due date and each location to sent the money to.
The Benefits of Debt Consolidation
Debt Consolidation has the benefit of taking all of your different loans, no matter what they were taken out for, and condensing them all into one place. This means you only have to worry about one single payment with one fixed interest rate that goes to one place. Consolidating your debt into one loan gives you peace of mind by making everything a lot more organized.
The Cons of Debt Consolidation
If you have multiple loans with low interest rates, consolidating them might not be in your best interest, as there is a chance of the new loan’s rate being higher, therefore you end up paying more money in the long run. Always check to make sure you are paying off and combining loans by taking a Debt Consolidation loan with a better rate.
Does it sound like Debt Consolidation is the right type of loan for your business? Find out more with One Box Funding here.
