Debt consolidation is the process of availing new loan to close all the existing or high paying debts. It is easy with a good credit score than a bad credit score.
The complete discussion will be how you can avail consolidation loan with a bad credit score.
CREDIT SCORE:
- The credit score is the process to check the borrower’s capability of paying off the debt.
- This is a representation of numerical value ranging between “300-900”. The higher credit value will be defined as a good credit score.
- 750 – 900 – Good Credit Score
- 600 – 750 – Fair Credit Score
- <600 – Bad Credit Score.
- The credit score is been analyzed by a few companies like CIBIL, Experian, Equifax, Highmark.
- These companies provide the report of the borrower to the lender on basis of past loan history.
- History of the loan payment is the main factor in considering credit score. This weights up to 35% in the overall calculation.
ADVANTAGES OF CONSOLIDATION:
- As stated before on the definition, there are many advantages related to the consolidation of loans.
- All high paying debts can be closed and can be maintained in a single average interest rate
- This makes you free from stroking behind multiple paying days to multiple lenders.
- This can be used to add on loans for your personal use like education, children’s marriage, renovation of home, etc.
- Most often consolidation of loan is applied through personal loans. A good credit score will land in lowering of interest.
- While paying high-interest rate loans such as credit card loans, consolidation of loans will be the best method to get rid of.
- This will reduce the stress, and will be having a regular payment date.
- There will be a high chance of increasing the credit score.
HOW TO GET LOAN CONSOLIDATION FOR BAD SCORE:
- Bad credit score often doesn’t get a consolidation loan.
- If still need a consolidation loan, you have to pay a higher interest rate on the personal loans.
- There are many options available for lending loans for bad loans. Let us have look one by one.
- TAKE A PERSONAL LOAN FROM EPF:
- If you have an EPF account, avail for a personal loan. It has a lower interest rate among personal loans in the market.
- You can make it a consolidated way and close all your debts.
- If the amount from EPF is not sufficient, pledge the gold you have in hand to close the debts.
- ONLINE LENDERS (P2P):
- P2P is termed as peer to peer lending, which currently has a market size of 200 crores currently and projected to be at $5 million in India by 2023.
- It is an easy process of availing a loan, the interest rate is directly decided by the lender.
- The interest rate varies from 12-40% per annum.
- It doesn’t require any credit score background, but while you get a loan through the P2P platform you will be monitored through payment history.
- There are many online lender platforms are available like LenDenClub, Lendbox, Faircent, i-lend, etc available in India.
- It is completely approved and monitored by the Reserve bank of India under NBFC-P2P.
- If you can get a huge amount for less interest rate, Peer to peer lending will be the best option for a consolidation loan at a bad credit score.
- PLEDGE MORTGAGE DOCUMENT FOR LOAN:
- This is another type of method to get an easy loan from a few private banks at a lower interest rate.
- As you submit an equal asset of mortgage, the bank will be ready to provide the desired amount with a moderate interest rate and in the tenure period of 5 years.
- These are the easy method of availing consolidation loan with a bad credit score.
SOME TIPS TO INCREASE CREDIT SCORE:
- PLAN A PERFECT BUDGET:
- The first thing you do to maintain a good credit score is by planning a perfect budget.
- Always follow the budget and update now and then to avoid last-minute collapse with a budget.
- Your expenditure shouldn’t breach the budget plan.
- Have a clear proportion for Needs, Wants, and savings as 50%, 30%, and 20% respectively.
- If you have debts, focus your budget towards closing the debt on top priority
- CLOSE CREDIT CARDS:
- Credit cards are the main reason for high debts. The interest rate is higher.
- Usage of credit cards for a heavy transaction will lead to non-closure of debt and get us towards bad credit scores.
- AVOID OVERSPENDING:
- The major issue in financial management is overspending.
- Nowadays shopping became an art or hobby for many people of the age group 20-40.
- Overspending will lead to zero saving and make you as spendaholic.
- Avoid overspending and make more contributions to savings and investment.
- This will be useful to reduce the debts very fast too.
These are the major steps to increase your bad credit score.
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CONCLUSION:
- The debt consolidation loan is an important process to close the high paying multiple debts by availing a single loan of the lower interest rate.
- Debt consolidation loans are very tough for bad credit scores.
- There are few options to avail of debt consolidation loans but the interest rate is higher.
- The new model of availing loan for a moderate interest rate is P2P.
- Also, try to follow the above steps to increase the credit score of more than 750.
