Personal loans can be combined by taking a new loan and repaying all the existing debts. This is beneficial in order to reduce the repayment of personal loans at higher interest rates. It saves you lot of money. But certain risks in this facility do exist such as additional charges, more amount of interest and payment of documentation charges.
You are in terrible situation as you have availed personal loans from different banks and financial institutions. You are required to keep a track of all the EMIs and you are paying lot of interest for the loans. A bank approaches you with the facility of combining all your existing personal loans. It offers to issue a fresh loan to you so that you can repay all your existing debts. Moreover, it is charging relatively lower interest rate. So, now you are in a decision making position. Let us go through the benefits and risks involved in availing this facility.
Benefits of combining personal loans
In most of the cases, these loans are for a longer period of time so that you won’t be pressurized to repay it. The rates of interest charged are also relatively low. Hence, you are paying small amount of EMIs to the new bank. As you are required to take care of only one loan, it helps in planning your monthly income. You also need not have to keep a track of all the EMIs of different banks. Instead of the credit card or other loans, the rate of interest for combined loans is low.
You are suggested to be more disciplined and organized after availing this facility. This fresh loan does not mean that you can apply for more personal loans in the future. You must actually take the advantage of reducing the current debt list in your budget.
Risks of combining personal loans
You must be particular in repaying the new loan or else it will suffice only for a short-term period. The personal loans are combined with the feature of lower interest rate for a longer duration. It means you are paying for a longer period and more amount of interest. Got the point?
Some banks levy additional charges such as for late payments, and even minor defaults in the repayments. Note that these banks are more particular than your existing banks when it comes to repayment of the new loan.
Before approaching the new bank, you must have a detailed discussion about the terms and conditions governing the new loan. You should not end up in paying higher rate of interest. Some banks are tricky with this approach! You may be required to pay documentation or application fees for the same. Check with the bank before they you apply for the loan. It is also a tedious process to submit the documents and go through the application process again. If you have repaid substantial portion of your existing debts, then combining won’t serve the right purpose.
Conclusively, you need to explore the banks and its terms before combining for your personal loans. If you are felling that it is the right choice, then be disciplined and monitor your budget accordingly.
Recommended Read :
- What is a Personal Loan?
- How to Get Personal Loan?
- Personal Loan for Women Employees
- What is Personal Loan Eligibility and Benefits?
- Facts to Know Before Applying for Personal Loan
- Beware of Personal Loan Frauds
- Gold Loan vs Personal Loan
- Personal Loans Vs Mortgage Loans
- What is Unsecured Personal Loan?
- How to Get Loan Against Insurance?
- How to Get Unsecured Personal Loans?
- Secured Loan vs Unsecured Loan
- Pros and Cons of Financing Business With Personal Loan
- Pros and Cons of Prepayment and Part Payment of Personal Loan
- Loan Against Car
- Who are Private Lenders?
- Processing Fee for Loans
It’s not a very good decision to take loan to pay off your existing debts. Because all you are doing is going more into debt. In my opinion its always better to have only 1 existing loan and not get involved into getting more than 1 personal loan. Sure there are benefits of combining persoanl loan but as you mentioned one will end up paying more interest regardless of the fact that the interest rates are low. With the current loans one has already paid enough interest and to stretch it more is not a sensible idea.
I agree with nirali. Personal loans should ideally not be forayed into unless there is dire requirement. A person having so many loans shows a very bad picture about his capabilities v/s desires graph and it also has aggravated risks. Combining all the loans to a single loan and taking another loan to pay the former sounds erratic. Its better to be vigilant in paying the existing debts and ward off the risks rather than pushing yourself more out of this quicksand situation which benefits no one but the lender!Beware.
There is a price to be paid for every service or commodity as nothing comes free. Taking a loan to repay all the previous loans portrays a bad picture in terms of finance. The extra loan should only be taken to lessen the burden of the existing loans and not for any other purpose. It then only will serve the purpose.
The overburden of debt can become a source of depression, stress and suicidal tendency too. It is observed in India many people suicide due to debt of loan most of which are Indian farmers. Banks have provided such facilities to lower our debts and live a healthy tension free life.