Increased consumer spending and easy availability of credit are leading consumers to avail multiple credit services for meeting their discretionary expenditures. As such, many consumers are burdened with high-interest debt and have minimal amount left for savings or investment to achieve their key financial goals. Those struggling with multiple debts can reduce their burden by consolidating those debts under a single loan availed at a lower interest rate. To explore the advantages of debt consolidation, please visit our website and simplify your loan management. Doing so will allow consumers to save on their overall interest costs. Although one can choose from multiple loan options to consolidate their outstanding dues, borrowers usually prefer personal loans due to the following reasons:
Considerable savings in terms of overall interest costs
Banks and NBFCs usually offer personal loans at interest rates of 10.49% p.a. onwards, with some public sector banks offering lower interest rates on their personal loan schemes. The interest rates offered on personal loans is much lower than the credit card finance charges, which usually start from 40% p.a. For example, the SBI Personal Loan interest rates start from 11.05% p.a., which is far below the finance charges levied by various credit card issuers. Hence, borrowers having outstanding balances on their multiple credit cards should avail personal loans to consolidate their debts. Doing so will help reduce their overall interest cost burden. As the repayment tenures for personal loans usually range between 1 and 5 years, you can use the proceeds from your personal loan to pay off your existing credit card debt and reduce your monthly repayment burden.
Borrowers having high-interest rate loans can also avail personal loans for consolidating their debts if the rates offered on the personal loan is much lower than the interest rates on their earlier loans. Besides lowering your interest costs, personal loans for debt consolidation will also eliminate your need to track multiple EMIs and their due dates.
Quicker loan processing and disbursal
The processing time for personal loans is faster than secured loans. Lenders offering secured loans may take more time in verifying the security/collateral provided by the loan applicant. However, personal loans are sanctioned primarily on the basis of their loan applicants’ credit profiles. Furthermore, the adoption of digital infrastructure has allowed many banks/NBFCs to offer personal loans through the online mode with end-to-end digital onboarding process and thereby, reducing the turnaround time for loan sanction and disbursal.
Many banks/NBFCs also offer pre-qualified or pre-approved personal loans to their select existing customers with instant or same-day loan disbursal. As lenders offering pre-approved personal loans already have their existing customers’ KYC details, such loans usually do not require any further documentation. Thus, lenders can disburse pre-qualified or pre-approved personal loans within minutes of their customers making the loan application.
No need for security/collateral
As personal loans do not require any collateral or security, most borrowers select this credit option to consolidate their debts. Those opting for secured loans have to pledge an asset as collateral/security. In case the borrower defaults on his loan, the lender can take possession of the pledged collateral and sell it to recover their losses. Personal loan borrowers, however, do not have to face such risks.
Personal loan alternatives like loan against securities and loan against property are secured credit options, wherein the lender requires their borrowers to provide an asset as collateral/security. Therefore, the list of documents needed for availing such loans is more extensive than the documentation for availing unsecured credit options like personal loans. Lenders usually ask their personal loan applicants to submit documents to establish their proof of identity, address and income at the time of loan application. Some lenders also offer personal loans with paperless documentation, usually to their select existing customers, wherein loan applicants have to upload the required documents online instead of submitting physical paperwork.