Are you considering consolidating all your loans? For sure, you are intending to do so to effectively overcome your debt problems soon. However, as we all know, such loan products are not only full of advantages. Some disadvantages come with those. In the case of debt consolidation loans, you may be surprised at how there are more possible disadvantages than advantages.
In the end, your decision whether to apply for and obtain debt consolidation loans or not would depend on how you could gain from getting one. The cons could surely be outweighed by the pros. You would need to fully reassess your personal and financial condition to properly evaluate debt consolidation loans and determine if it would be best if you get one.
The pros
First, debt consolidation loans could help you significantly lower the amount you need to shoulder paying off your monthly dues for loans. This could be because the high-interest rates of your original loans could be replaced by a single but lower interest payment required. The term of the loan could be longer, which logically makes lower interest charges possible. Thus, such products are ideal if your main goal is to reduce loan payments you are required to make every month.
How about the convenience of combining all of your existing debts into a single loan? That is facilitated by a debt consolidation loan. Such products are usually huge enough so you could repay all your current loans. In exchange, you would make a new significant debt that has consolidated all other debts. That means you would only have to deal with only one creditor, which would make paying off debt less confusing and convenient on your part.
You may say goodbye to all your other creditors that have been pestering and harassing you. On top of that, you may take a bargaining power to waive annual fees, lower service charges, or get much lower interest rates. You could further make more convenient and advantageous provisions and terms for your new loan.
The cons
First, debt consolidation loans are mostly secured loans. The interest rates could be much lower but that could be in exchange for longer terms. Such loans may take up to 20 years or longer to mature. Monthly payments required could truly be more attractive but if you could compute the overall costs of such loans, you may end up paying more. And because you have put a property as collateral, you are not exempted from the possibility or risk of losing it if you would default on the loan.
Most loan providers that offer and provide debt consolidation loans also impose financial penalties if you would attempt to alter the terms of the contract in the future. Those are called early exit fees. Your current loans may also impose such charges, which may make it less practical to opt for debt consolidation. Applying for and getting approval for debt consolidation loans could also get more difficult and there are many disreputable lenders out there that may take advantage of you.