Thinking of managing your debt through a debt consolidation loan? When taking on a debt consolidation loan, certain risks may be associated with taking out such a loan. Such as possibly acquiring more debt than initially planned. While debt consolidation may help those manage their debt more effectively, reduce their monthly instalments and save money. There may also have financial ramifications if not handled properly. Below we will look into the possible high risk of debt consolidation loans.
Your credit score and high-risk debt consolidation loans
When taking out a debt consolidation loan. Your run a high-risk regarding debt consolidation loans to either improve or damage your credit score. Failing to meet your repayments will hurt your credit score and affect any potential loan you may need. However, honouring your repayments early and paying larger sums than the minimum required will benefit your credit score indefinitely.
Poor credit score and interest rates
A poor credit score will result in you possibly not qualifying for such a loan. Additionally, you may be subjected to higher interest rates due to bad credit. Lenders will access and assess your ability to repay a loan and verify your ability to pay back the loan through your credit score. Additionally, they will charge fees and rates accordingly to your credit score and other factors. Hence, you should ensure you can honour your monthly repayment plans with your credit provider.
Fees associated with high-risk debt consolidation loans
Certain loans will have rates and fees associated with them. These range from upfront payment fees such as balance transfers, late fees, and closing costs to annual fees. Consider its potential fees before applying for a debt consolidation loan.
The use of collateral
The risk of losing your collateral, if you have secured a loan this way, you should keep in mind failing to pay this loan will result in the lender taking possession of such assets.
Failing to honour repayments
When your fall short or miss payments, you will usually have to pay late fees and penalties. However, failing to pay such funds will result in additional charges, such as returned payment fees. These fees will overall increase the initial total cost of your loan. Not paying entirely within 30 days will lead lenders to report you to the credit bureaus. Once reported, your credit score will be affected and ruin future applications for potential loans.
Consolidating debt has no guarantee.
Although debt consolidation may allow your debt to be more manageable and allow you to reduce your monthly payments, it does not, however, ensure that you won’t find yourself in debt once again. Living above your means or having a tendency to overspend, you may again find yourself in debt. Avoid this by limiting your spending within a budget and adhering to it to avoid overspending or acquiring more debt. The term is usually longer compared to that of a standard loan. Hence, the result is being in debt for longer than expected.
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*Representative example: Estimated repayments of a loan of R30,000 over 36 months at a maximum interest rate including fees of 27,5% APR would be R1,232.82 per month. Arcadia Finance is an online loan broker and not a lender. Our service is free, and we work with NCR licensed lenders in South Africa. Interest rates charged by lenders can start as low as 20% APR, including an initiation and service fee determined by the lender. The interest rate offered depends on the applicants' credit score and other factors at the lender's discretion.
Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.
Loan amount R100 - R250,000. Repayment terms can range from 3 - 72 months. Minimum APR is 5% and maximum APR is 60%.
