Debt Consolidation Loan

What is a debt consolidation loan?

A debt consolidation loan is a key tool in a debt consolidation strategy and debt consolidation loan allows a debtor to to lump all of their debt into one loan. A debt consolidation loan is usually obtained in a way that ensures that the debtor can repay their loans under a lower interest rate lumped in to one loan.

What are some classic debt consolidation loans?

The most convenient way to consolidate debt is through a balance transfer card. A balance transfer card works by optimising the interest-rate that someone pays across all of the interest rates that they have loans over. Sometimes people can have a home loan, a credit card or several credit cards, a car loan, a personal loan or they may be several other types of debts which they have. If a person is in this situation they may be able to benefit from debt consolidation. Creditors also benefit from debt consolidation because it allows the creditor to be paid back in full when they would otherwise not be paid back a small proportion of what the are owed. As long as a person as income either from a job or from an investment if they are presently going through a cash flow situation which is making it difficult for them to repay their loans that they will definitely benefit from debt consolidation as debt consolidation can solve the problem in a way that is in the interests of all concerned parties.

However there debtor some unscrupulous providers of debt consolidation loans who actually operate as loan sharks. These types of debt consolidation operators will offer loans which package all of the other debt against a higher interest rate than the debtor was originally paying. This actually makes it harder for the person who owes the money to repay the debt because the debt is now snowballing at a high rate of interest than they were originally paying and so they are deeper in debt trap than they were in the first place this is known as predatory lending and in some cases can lead to litigation against the lender. Or it can also result in debt not having to be paid back person who owes the money because they have lost the ability to pay it was not fully explained to them at the time the full implications of signing up to the debt consolidation loan agreement.

In New South Wales for example there is legislation such as the consumer credit code which prevents this type of predatory lending and means that lenders who lend in this way may not be able to enforce the loan if it is not paid back. There is also the common-law doctrine in equity of undue influence. This doctrine says that where someone was pressured to sign up to a loan agreement where there was a significant disadvantage of one party in bargaining power and the stronger party took advantage of the situation then the law of equity will protect the person in the weaker position in the transaction. The classic case of this type is where a bank loans money to the son of an immigrant couple who do not speak English. They signed loan agreement expecting their son to pay the loan back in full but have no understanding of the full implications of the loan. In a case like this the bank was unable to enforce the loan agreement because of its significantly stronger position in the bargaining process which the Court determined it had taken advantage of.

If you would like more information about a debt consolidation loan there are many sources of those loans and they can be genuine assistance if you were in a position to benefit from them. It is therefore necessary that you carefully analyse whether or not a debt consolidation loan is in your interests before you sign up to a loan like this.

Debt Collection Letter Resources