Borrowers struggling to repay their debt incurred from multiple loans and/or credit card dues can ease their debt burden and reduce the interest costs by consolidating their existing debt under a single loan scheme availed at a lower interest rate. Although borrowers have multiple loan options to consolidate their outstanding dues, choosing personal loans for debt consolidation can be the optimal solution for to the following reasons:
Interest cost savings
Banks and non-banking financial companies offer personal loans at interest rates usually starting from 10.49% p.a., with some public sector banks offering lower interest rates. Being unsecured in nature, the interest rates offered on personal loans by most lenders are usually higher than secured loan options like home loans, gold loans, loan against property, etc. However, the personal loan rates are significantly lower than the finance charges levied on credit cards, which are usually 40% p.a. or above. You can visit Paisabazaar.com to check and compare the personal loan interest rates of multiple lenders before applying for the loan.
Hence, borrowers who have availed loans at higher interest rate loans or who have huge debts on their credit cards may avail personal loans to consolidate them and reduce their overall interest cost burden. As the personal loan tenures usually go up to 5 years, opting for personal loans to clear your credit card dues may help in reducing your monthly repayment burden.
Faster loan processing and disbursal
Banks and NBFCs offering personal loans usually take less time for loan disbursal when compared to secured loan products. Lenders offering secured loans need more time to conduct due diligence of the pledged asset. In comparison, they approve personal loan applications based on their loan applicants’ credit profiles. With many lenders integrating digital infrastructure in their lending process, they can now offer personal loans through online mode, thereby reducing their turnaround time for processing loan applications.
Many lenders also offer pre-approved personal loans to their select existing customers, on the basis of their credit profiles, with instant or same-day loan disbursals. As lenders offering these loans already have their existing customers’ KYC details, loan applicants need not submit additional documents to avail these loans. The time saved on document verification ensures faster loan processing, thereby allowing lenders to disburse the personal loan amount within minutes of receiving your loan application.
No need for security/collateral
Many borrowers choose personal loans to consolidate their existing debts due to the unsecured nature of personal loans. They can also use secured loan options like loan against property for this purpose. However, doing so will require them to pledge their asset(s) as collateral/security. Doing so will allow the lender to auction the pledged collateral and recoup its losses if the borrower defaults on his/her loan. However, those opting to consolidate their existing debts using personal loans need not worry about losing their assets while availing this unsecured credit facility.
Requires less paperwork
The documentation process for personal loans is less cumbersome than other secured loan options, as borrowers need not pledge any asset as security/collateral. However, its alternatives such as loan against securities or loan against property have underlying assets as collateral/security. Therefore, those availing secured loans need to submit more documents as compared to personal loans. Lenders offering personal loans usually require their applicants to submit documents for proof of identity, address and income. Some lenders also offer personal loans without documentation but usually to their select existing customers. Lenders offering such personal loans already have the required KYC details of their existing customers, which allows them to skip the document collection and verification process, thereby ensuring faster loan disbursal.
