To consolidate a loan means to combine multiple existing loans or debts into a single new loan with one monthly payment, often at a lower interest rate and with a new repayment plan. This process simplifies debt management by replacing several payments to different creditors with just one payment to a single lender. The goal is usually to reduce the overall interest rate, lower monthly payments, or both, making it easier to manage and pay off debt effectively
. Key points about loan consolidation include:
- You take out a new loan to pay off your existing loans, effectively merging them into one
- The new loan typically has a fixed interest rate and a set repayment term, which can be longer or shorter than the original loans
- Consolidation can improve your credit score if you make payments on time, but extending the repayment term might increase the total interest paid over time
- It is common in personal finance for credit card debts, student loans, or other unsecured debts
- Eligibility and terms depend on your credit score, income, and credit history
In summary, consolidating a loan means replacing multiple debts with a single loan that ideally has better terms, making repayment more manageable and potentially less expensive overall. However, it is important to carefully consider the total costs and repayment timeline before consolidating
