Australian Loans Financial Defintions -Consolidation Loan

Consolidation Loan

A loan used to combine other loans together into one.

For example if you have money owing on several credit cards, store cards, loans, student loans, etc. then rather than paying all these separely you could take out one loan, repay all the smaller loans and therefore only have one loan to pay back. This usually has the effect of reducing monthly outgoings and paying a lower APR.

A consolidation loan can be useful if you have several debts which incur high interest charges.

What to watch out for when consolidating debts

1. The numbers.
Do you understand what the interest rate is? Its no good jumping from one high interest rate to another.

2. Hidden Costs
Make sure there aren't any hidden costs which you might find make the move unattractive on both the new loan and the old loans or cards.

3. Financial Responsibility
Consider carefully before taking out a secured loan or asking someone to be a guarantor for you.

4. More Debt?
Resist the temptation to take out additional funds when you consolidate your debts. Perhaps you should cut up your credit cards.

5. Pay it off
Make the extra effort to clear your new consolidated loan as quickly as possible.

6. Sharks
Steer clear of sharks!

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