If you’re wondering whether you qualify for consolidation loans for debt, it is likely you are already dealing with your debt problem. You are well on your way if you are thinking about the benefits of consolidation loans and whether or you won’t be eligible.
Naturally, taking out debt consolidation loans can be a little uncertain. While people with low credit scores are eligible for debt relief programs, they aren’t eligible for consolidation loans.
So, what are the requirements to be eligible for debt consolidation?By De-Debt Homepage we have a few tips to share in this regard.
Factors to Be Consider when determining your eligibility for debt consolidation
You must consider these three key factors when determining your eligibility. They are:
- Your secured loans can’t be combined with debt consolidation loan
- One option is to have excellent credit or to find lenders who offer high-interest loans even if you have low credit ratings.
- The ratio of debt service should not exceed 35%
Let’s take an in-depth look at each criteria.
Consolidating your debts is for unsecured debt only
Is debt consolidation possible for you? The only way to consolidate your unsecured debts is through consolidation. As a rule of thumb, you can’t embed debts secured through collateral. These debts include the following:
- Auto loans
- Credit for home equity
You can consolidate all of your unsecure debts. This is debts that do NOT require collateral. These debts can include:
- A personal loan, unsecured
- Student loans
- Tax arrears
- Credit card debt
- Credit for personal use
To consolidate your debts and save money, make sure to include all of your current accounts. This will help reduce your monthly bills and help you pay off your debts more quickly. It will be much easier to only pay one bill per year, instead of making multiple payments. This is especially beneficial for those who have multiple credit lines with different payment dates.
Good credit scores deserve good interest rates
To qualify for the lowest interest rates on your debt consolidation loans, you will need to have a good credit score. If your credit score is poor due to missed payments or collections, you will have difficulty qualifying for the loans.
Many individuals are so poor on their credit reports that it is difficult to find lenders who will lend them money. The interest rate is much higher than usual, even if the applicant does qualify.
Consolidating is not an option if the interest rate that you are entitled exceeds the interest rate on your current accounts. While you might be able to reduce interest rates, it won’t save you much. In fact, you’ll still pay nearly the exact same amount each month. The interest rates on a debt consolidation loan are only beneficial if they aren’t higher than your current payments.
There are different criteria lenders use to determine whether borrowers are eligible for debt consolidation loans. While some lenders will lend to borrowers with low credit scores or high credit card debt, others may require that borrowers meet more stringent criteria.
You can still be eligible for loans even if your credit score falls below 600. Unsecured loans do not have collateral. in case you don’t repay your loan.
You should not take out debt consolidation loans if your credit rating is poor. You might be better off looking for other solutions.
Lenders Consider Your Debt Service Ratio
When evaluating your debt consolidation applications, lenders often take into account your debt ratio. The ratio of debt service is the percentage of gross income that is needed to make the minimum monthly debt payment. This includes payments for secured debt.
Let’s say you have a monthly income of $ 4,000 and you pay $ 1,500 a month to keep up to date with your debts. Your debt service ratio would be 37.5%.
Lenders have different limits for debt consolidation loans. They will factor in your new loans to the debt ratio calculation. When the ratio is still high, it might be difficult to get approval from lenders.
Most experts agree that the ratio should be maintained at around thirty-five per cent. It is possible to get approval for higher ratios, depending on lender requirements. For the monthly debt payment to be covered, however, you will need a high percentage of income. You will end up living paycheck to paycheck, and you may not be able pay your bills.
What happens when you don’t qualify for debt consolidation loan?
These loans might not be for everyone. Many people are searching for such loans after reaching a point where they cannot get loans. The debt and credit scores of these people may be too high for them to qualify.
It is time to explore other options, even if most lenders tell you no. If this is the case, you should contact a credit counseling organization. They will analyze your finances and help you find the right solutions.
Most cases will require people to apply for debt management plans. These are basically repayment plans set up by credit counseling offices. It lowers interest rates and allows you to make one monthly payment to repay the debts. This is similar in concept to consolidation.
The bottom line
If your credit is excellent and your debt service ratio not too high, you may qualify for unsecured loan consolidation. However, if your credit score is not good enough to qualify for a consolidating loan, it’s a good idea to seek out a counseling agency that can help you manage your debt. However, you should be ready to make necessary spending changes to get the job done.