How is Balance Transfer Different From Debt Consolidation?
There are many needs in life which can be fulfilled by taking a loan from the bank. Because the banks provide different loans for different needs of the applicant. But the loans that are provided by the banks are to be paid with the interest within the decided tenure. Some loans have high-interest rates, which causes the applicant to default on the payments. And due to the many loans availed by the applicant, the applicant is forced to compromise on many things in life.
If the applicant has different loans pending he can opt for a debt consolidation. In a debt consolidation loan, you take a single loan to pay off all the other loans that were pending for the applicant. The main types of debt consolidation are unsecured and secured. When you apply for a secured Home Loan, you have to offer collateral to the bank such as a house, a vehicle owned by the applicant, or any retirement fund that the applicant has. Also, a secured loan can be availed from any bank or money lender.
In an unsecured loan, there is no need to offer collateral to the banks or the money lender. Hence the interest rate for the unsecured loans is high due to the risk is taken by the lender while lending the amount. But if the applicant has a high credit score then the interest rate may be lower.
The most common debt consolidation loan is a home equity loan. In a home equity loan, the applicant can offer his house as collateral to the bank to get the loan amount. You can also avail tax deductions due to the interest paid for the loan.
Moreover, you can avail a top up a loan with an existing home equity loan. A top-up loan is provided by the banks when the applicant has paid a certain number of EMI’s to the banks. This can also be used for other professional and personal uses.
In a balance transfer, you can transfer your Home Loan to another bank to avail lower interest rate. If you wish to apply for a balance transfer, you have to check the balance loan amount which you have to repay.
Also while applying for balance transfer you need to check the interest rates that are offered by the bank. You can search for the banks, which will provide you balance transfer with the low-interest rates. You also have to make sure that the charges for the balance transfer are low. For instance, if you have a credit card loan of INR 50,000 pending on your account, despite your efforts to pay the principle amount. Consider that you are not able to pay the principle amount due to the high-interest rates. So, in this case, you can switch the loan to another bank and pay the loan with a lower rate of interest.
Debt Consolidation vs. Balance Transfer
If you are confused on which option would be better for you to choose, you can consider these points.
In debt consolidation, you can pay off your different loans by applying for a single loan from the bank.