According to a recent study conducted by the Reserve Bank of India, personal loans accounted for almost 96% of all non-food credit available in the Indian financial market. Today, almost Rs. 2.34 trillion is accounted as personal loans, with the total amount increasing approximately by Rs. 1.27 Crore between the fiscal year 2017 and 2018.
There are several reasons for such immense growth in the popularity of personal loans. Their attractive interest rates, flexible repayment tenor, transparent policies and instant approval make them ideal for everyone. Moreover, these loans do not come with any end-usage restrictions, meaning you can utilise the money for multiple reasons like consolidate your debts, fund higher education, meet medical expenses, etc.
Debt consolidation is one of the most common usages of personal loans. These credits often come with a much lower interest rate than other forms of short-term financing. A significant number of borrowers use a personal loan to consolidate multiple existing debts including credit card dues.
There are several reasons why you should clear your overdue payments with a personal loan. Let’s take a look at some of them.
- It allows you to pay off multiple dues at the same time – A personal loan for debt consolidation allows you to clear overdue payments at the same time. Debt consolidation is one of the most effective uses of a personal loan; you can combine multiple credit card dues into one monthly payment. It eliminates the hassle of managing several bills at the same time.
- It lowers the interest rate – Merging multiple credit card bills into one personal loan to consolidate your debts can significantly reduce the interest rate as you are not paying separate interest on multiple credit accounts. Moreover, lenders are likely to offer a lower interest rate on personal loans than other types of short-term financing like credit cards.
You can also avail better interest rates if you have a good credit score, stable employment status, good credit history, and a low debt-to-income ratio. Competitive interest rates allow you to repay the debt without straining your finances.
- It reduces your monthly payments – A lower interest rate is guaranteed to reduce your EMI payments on a personal loan to consolidate your debts. It is a significant factor as it allows you to save a considerable amount of money during the loan’s tenor.
Moreover, NBFCs offers products like Flexi Personal Loan which allows you to withdraw the exact amount you require to meet your financial obligations from a pre-set limit. You pay interest only on the borrowed sum instead of the total amount, which can reduce the EMI by up to 45%.
- It improves your credit score – Personal loans can be an effective financial tool to improve your credit score. Not only are you diversifying your credit portfolio but timely repayments will also leave a positive impact on your overall credit score. Credit bureaus will consider you financially responsible and creditworthy if you pay off your credit card’s overdue payments as well as the personal loan availed to consolidate it together.
Personal loans are an efficient financial tool for debt consolidation. The above-mentioned features and benefits along with minimum processing fee and charges make them attractive and affordable for everyone.
