The difference between debt consolidation loans and regular loans is simply what you’re using the loan for. Technically, there are several different types of personal loans that could be used for consolidation. If you’re taking out a loan in order to pay off several other debts, then it’s a consolidation loan.
A consolidation loan is any loan you use to pay off several other debts. There are a few different types of loans that borrowers typically use for consolidation:
Traditional Bank Loans: these are recommended for consolidation because if you have a decent credit score you can likely get a good interest rate. Getting a better interest rate on your new consolidation loan compared to the rate on your current debts is key. This could help you save a lot of money on interest in the long run. The problem is that you typically need a decent-to-good credit score to be approved.
Credit Union Loans: a credit union is like a bank, but it’s not a for-profit institution. You have to be approved to be a member of a credit union. You can usually become a member through a friend or family member who’s a member, or based on where you live or work. Credit unions also tend to offer lower interest rates. If you can find one, become a member, and get approved for a loan, they can be a great way to consolidate your debts.
Personal Installment Loans: a personal installment loan is a good option for consolidating your debts if you have a poor credit history. These loans tend to carry higher interest rates than bank and credit union loans, but you’re more likely to get one even with a low credit score. If you have payday loans to pay off and consolidate, a personal installment loan may be good for you.
No matter which loan you choose, make sure that you can afford the interest rate and the payments. Review all of the information in the loan contract and make sure you’re familiar with all of the repayment terms and conditions. This will help you find a safe and affordable loan.
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