Debt Consolidation with Loans: What You Need to Know
Depending on your situation, using a loan to consolidate debt might be right for you. Debt consolidation lending allows you to borrow a specific amount to pay off some or all of your existing debts, especially those that are at a higher interest rate. Using debt consolidation, loans you currently have may be paid off, effectively moving your debt to one new loan.
The overall idea: Pay off your existing loans immediately, possibly improve your credit score, and pay down the consolidation loan with steady, monthly, predictable payments.
Personal loans for debt consolidation
Debt consolidation is a primary reason for many personal loans, including a personal loan from Santander Bank. Here are a few things to think about if you're considering a loan for debt consolidation.
Advantages of using personal loans for debt consolidation:
- Possibly improve your credit score: If you've got a large number of smaller bills and a substantial, stable income (or a recent increase in income), you can pay off or consolidate those smaller bills using a personal loan. The newly-paid accounts may appear as a positive indicator of creditworthiness to credit reporting agencies.
- No collateral: Personal loans from Santander Bank require that you pass a credit check, but you do not need to put up collateral (like a house or a car).
- Automatic debit discount: Save on your personal loan interest rate when you have your payments automatically withdrawn from your Santander checking account.
- Predictable monthly payment: You know exactly what you'll pay each month towards repayment.
- Lump sum disbursement: You'll get your full loan amount up front so you can pay off your existing debt immediately.
Disadvantages of using personal loans for debt consolidation:
- Interest rate: Personal loans come with an interest rate based on your creditworthiness, and as with all loans, you'll need to pay Santander Bank or another lender for the privilege of borrowing. Make sure to take into consideration the cost of borrowing money before you sign on the dotted line.
- You're committed: Depending on the amount and terms, you may be committed to a repayment term of up to 60 months. However, there are no penalties for paying off the loan early with Santander Bank.
Do debt consolidation loans hurt your credit?
Generally, debt consolidation using personal loans tends to help your credit. However, it only works if you stick to your repayment plan and keep your other debts under control. Your credit will reflect everything you pay off with your lump sum.
Your credit report will also show the credit inquiry for the loan application and the new open account. As this is a brand new account, it will also lower your average account age (the average of how long all of your accounts have been open). These items may have a small or negligible negative effect. However, the increase in your amount of available credit and your improved payment history are both positive credit factors.
How does debt consolidation with loans work?
It's simple: You borrow a specific amount, with interest, for a set amount of time, and pay down your existing debts with the money borrowed for debt consolidation. Loans are often considered when the amount of debt you hold has a higher interest rate than the interest rate on the loan for debt consolidation. The classic example is with credit card debt which could be at an interest rate over 20%. Personal loans for debt consolidation may offer a lower interest rate. Thus, moving the debt from a higher-interest product to a lower-interest personal loan, could save money in the long run.
Considering loans for debt consolidation?
If you're curious about exploring the possibility of debt consolidation with a loan, talk to us at Santander Bank to help evaluate whether a personal loan from Santander is right for you. Contact a Customer Service Center Advisor today at 877-768-2265 from 6 a.m. to 10 p.m. ET, seven days a week. Please note that this information is intended for Santander customers in the United States; different rules and regulations apply to our customers outside of the United States.