Risks related to the consolidation of loans
Consolidation of loan refers to the process of combining two or more loans of similar category to have one loan for the purpose of easy repayment. Consolidation of loan process results in converting the total amount of loan into a single one payable at a manageable monthly repayment installment. Consolidation of loan reduces the rate of interest and monthly outgoings hence making the repayment structure less burdensome and simple for the customer. Consolidation of loan helps in increasing the credit rating of the consumer.
Consolidation process combines all loans of a consumer to a single one providing an easy option to rescue him from the clutches of mounting debt. Debt can be of secured or unsecured type. The risk factor in loan consolidation increases when unsecured loans are concerned. Unsecured debts are those loans which lack specific collaterals at the point of default. Here the creditor does not possess adequate property to satisfy the debt demand, increasing the level of risk in consolidation process. Utmost care should be taken when dealing with the consolidation of unsecured debts to avoid any further financial complexity.
Loan consolidation process involves the risk of one debt giving birth to another. This hampers the continuity in the debt repayment process creating fresh troubles for both the lender and the consumer. In the process of consolidation extra care should be taken to ensure that one loan is not generating another to create a debt trap for the consumer.
The success of consolidation of loans process depends upon the timely repayment of the consolidated installment amount, no new credit during the period of repayment and stability in the income of the consumers. Any deviation in one of the above condition will increase the risk level of consolidation process. During this period, the consolidating agency should ensure that the installments are paid in time and the consumer is not availing a new loan.
Risk factor in debt consolidation process depends upon the nature of the debt also. Risk levels are different in different types of loans. The level of risk may not be equal in a student loan and a home loan as the former is less volatile than the latter. During the consolidation process nature of the loan should be studied properly to marginalize the risk factors in it.
Consolidation of loans leads to a decrease in the financial burden on the consumer thus avoiding situations like financial distress and bankruptcy. The consolidation programs are cost effective for both the creditors and debtors. Provided that the risks involved in the process are dealt professionally, the consolidation of loan helps in promoting a sound economic growth.
Consolidation process combines all loans of a consumer to a single one providing an easy option to rescue him from the clutches of mounting debt. Debt can be of secured or unsecured type. The risk factor in loan consolidation increases when unsecured loans are concerned. Unsecured debts are those loans which lack specific collaterals at the point of default. Here the creditor does not possess adequate property to satisfy the debt demand, increasing the level of risk in consolidation process. Utmost care should be taken when dealing with the consolidation of unsecured debts to avoid any further financial complexity.
Loan consolidation process involves the risk of one debt giving birth to another. This hampers the continuity in the debt repayment process creating fresh troubles for both the lender and the consumer. In the process of consolidation extra care should be taken to ensure that one loan is not generating another to create a debt trap for the consumer.
The success of consolidation of loans process depends upon the timely repayment of the consolidated installment amount, no new credit during the period of repayment and stability in the income of the consumers. Any deviation in one of the above condition will increase the risk level of consolidation process. During this period, the consolidating agency should ensure that the installments are paid in time and the consumer is not availing a new loan.
Risk factor in debt consolidation process depends upon the nature of the debt also. Risk levels are different in different types of loans. The level of risk may not be equal in a student loan and a home loan as the former is less volatile than the latter. During the consolidation process nature of the loan should be studied properly to marginalize the risk factors in it.
Consolidation of loans leads to a decrease in the financial burden on the consumer thus avoiding situations like financial distress and bankruptcy. The consolidation programs are cost effective for both the creditors and debtors. Provided that the risks involved in the process are dealt professionally, the consolidation of loan helps in promoting a sound economic growth.
Comments