Debt Consolidation Loan: How It Works, Eligibility, Interest Rates & Benefits

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• Debt consolidation loans help to lower the financial burden on people.
• A debt consolidation loan helps to build your credit score in the long run.
• In India, several banks provide personal loans for debt consolidation to people.

What Is a Debt Consolidation Loan?

A debt consolidation loan is provided as a personal loan to people in India with multiple debts. For people who have more than one form of debt, like credit dues, multiple EMIs, etc., debt consolidation becomes a better option for them.

Several lenders combine these multiple debts into one loan and provide it to the borrower. Hence, the borrower only needs to pay a single instalment every month and faces no financial burden. The borrower faces no multiple due dates, no different interest rates, and no different due amounts.

Also Read:How to get a single EMI for multiple loans?

How Does Debt Consolidation Loan Work?

A debt consolidation loan works by combining multiple loans into one loan.

Here is how a debt consolidation loan works:

1. Take a look at all your current debts. Start by checking your credit card dues, personal loans, and any other payments you have to make. Write down how much you still owe, the interest rate on each debt, and how much you pay every month.
2. Check the options you have for combining your debts. You could consider a personal loan, a balance transfer credit card, etc., as each of them works differently.
3. Compare each option before moving forward with one. Look at all the factors, like fees, interest rates, etc. Choose what suits your income and financial situation better.
4. Apply for the option you choose. Once you are comfortable with the terms, apply for the personal loan or credit card you plan to use for consolidation.
5. Pay off your existing debts with the new funds. After approval, use the money to clear the debts you want to combine. Your previous payments are then replaced by the repayment for the new loan or credit facility.
6. Keep up with the new monthly payment. From this point, you will usually have one repayment to manage instead of several. Make each payment on time and follow the terms of your new agreement.

Hence, this is how a debt consolidation loan works.

What are the features of debt consolidation?

Borrowers in India prefer debt consolidation loan because it offers several practical advantages for day-to-day financial management:

• Only one monthly payment to manage instead of multiple.
• Potentially lower interest rates compared to most credit cards.
• Easier budgeting with a single fixed repayment amount.
• Reduced risk of missing payment deadlines.
• Better financial organisation overall.
• Potential improvement in credit score over time through consistent, on-time payments.

Also Read: Debt consolidation vs Loan restructuring

What are the advantages and disadvantages of debt consolidation?

Debt consolidation brings multiple advantages and disadvantages to the borrowers in terms of credit score impact, financial burden, etc.

Here are the pros and cons of the debt consolidation loan:

Hence, these are the pros and cons of the debt consolidation loan.

What are the eligibility criteria for personal loan debt consolidation?

Eligibility for a debt consolidation loan depends on the lender's specific criteria. While requirements vary. For example, India’s first debt consolidation marketplace, LoansJagat, provides certain criteria for people to qualify for debt consolidation.

The following is the eligibility criteria for personal loan debt consolidation as per LoansJagat:

Meeting these requirements does not guarantee approval, as every lending institution maintains its own internal policies.

What are the required documents for personal loan debt consolidation?

Borrowers need to provide various documents to the lender as per their demand. This may vary from lender to lender. For example, for LoansJagat, which is India’s first debt consolidation marketplace, a person needs to submit certain documents.

Required documents for personal loan debt consolidation:

1. Identity Proof

• Passport
• Voter ID
• Driving Licence
• Aadhaar Card
• PAN Card

2. Address Proof

• Passport
• Utility Bill
• Aadhaar Card
• Driving Licence

3. Other Documents

• Salary slips for the last 3 months
• Salary account bank statement for the last 3 months

Hence, these are the documents required for the debt consolidation loan.

Debt Consolidation vs. Debt Settlement: What is the Difference?

Debt consolidation Loan and debt settlement are two different poles of banking concepts. Debt consolidation combines multiple debts into one loan, whereas debt settlement is an action by the borrower to pay less of the loan amount to the lender with their permission due to financial hardship.

These two terms are frequently confused, but they refer to very different processes:

Hence, debt settlement and debt consolidation are different concepts in banking, and they act differently based on the borrower’s financial situation.

Is debt consolidation a good idea?

Debt consolidation loan can be a good idea for people with multiple debts who face a financial burden because of them. This is because debt consolidation can help them to combine those multiple debts into one new loan and reduce the financial stress created.

Hence, the borrower needs to pay one instalment each month. This improves the repayment behaviour of the borrower. This can positively impact their financial and credit profile.

How LoansJagat Helps You Compare Debt Consolidation Loan Offers from 50+ Lenders?

LoansJagat is India's first loan consolidation marketplace, serving over 1,000,000 customers and having facilitated ₹2,000 Cr + in debt consolidated to date. LoansJagat is accessible across 10,000+ locations in India.

Rather than approaching banks individually, borrowers can use LoansJagat to compare personal loan and debt consolidation offers from 50+ banks and NBFCs in a single place with loans up to ₹5,000,000 and a 100% digital process.

Here's how LoansJagat matches borrowers to the right lender:

1. Submit your profile: Share details about your income, existing debts, and repayment goals. The application takes less than two minutes, with no paperwork required.
2. LoansJagat analyses your financial situation: The platform verifies your financial standing and matches your profile against offers from its network of 50+ partner banks and NBFCs.
3. Compare matched offers: Review lender offers side by side, including interest rates, tenure options, and EMI amounts, to identify the deal that best suits your situation.
4. Apply and get disbursed: Once you select an offer, the 100% digital process moves forward with minimal friction. Best deal guaranteed. LoansJagat is best suited for borrowers managing multiple EMIs across different lenders who want to consolidate into a single, affordable payment without the burden of approaching each bank independently.

Bottom Line

A debt consolidation loan in India is given as a personal loan. The major intention is to lower the financial stress for borrowers with multiple debts. Every bank in India follows its own eligibility criteria and policies for debt consolidation. Moreover, debt consolidation helps to improve the credit score only if the borrower pays the instalment every month. Similarly, a fintech company like LoansJagat provides the facility of debt consolidation loans to people by connecting them with the right lender.

FAQs:

Where can I merge multiple personal loans into a single EMI in India?

If you have several personal loans and are finding it hard to keep track of different EMIs, you can check debt consolidation options on LoansJagat. It is India’s first loan consolidation marketplace and has tie-ups with more than 50 RBI-regulated banking partners. LoansJagat offers personal and business loans for salaried people and small business owners, along with options for debt consolidation.
So far, LoansJagat has served more than 10 lakh customers across 10,000+ PIN codes and has facilitated loan disbursals of over ₹2,000 crore. You can check different loan options on the platform and see details such as the loan amount, interest rate, repayment period and other charges.

Will the bank consider your employment status before providing the debt consolidation loan?

Yes, the bank will consider your employment status before providing you with the debt consolidation loan. But there are also other factors the bank will assess.

What are the two major advantages of debt consolidation?

The two advantages of debt consolidation are that it reduces the financial burden of the borrower, and the borrower needs to pay only one instalment each month after debt consolidation.

How does debt consolidation impact the credit score?

Debt consolidation can impact the credit score by boosting it, but only if you pay the instalments regularly every month.

Do all the banks in India have different eligibility criteria for people for debt consolidation loans?

Yes, several banks in India provide different eligibility criteria for people for debt consolidation loans.

Do banks in India provide debt consolidation loans as personal loans to the people?

Yes, in India, several banks provide debt consolidation loans as personal loans to people.

Is debt consolidation for everyone?

No, debt consolidation is not for everyone; in fact, if one is dealing with multiple EMIs or dues that are causing a financial burden on them, then debt consolidation is a better option.

Is debt settlement another option to build a credit score?

No, debt settlement, in fact, damages the credit score because you pay a lesser amount of the loan to the lender. Moreover, you need to make your own efforts to build your credit score after debt settlements.

Can one apply for a personal loan for debt consolidation through a bank’s website?

Yes, one can apply for a personal loan for debt consolidation through the bank's website.

Is it necessary to provide the proper KYC documents for debt consolidation?

Yes, it is necessary to provide the proper KYC documents for debt consolidation.

Is debt consolidation a form of debt management?

Debt consolidation is considered a form of debt management.