According to the RBI, Indian households had an outstanding debt of Rs.43 trillion in 2021. This data indicates that borrowers may be struggling to manage multiple debts.
Individuals who are looking to clear these dues can opt for a debt consolidation loan. The said credit form extends substantial funds to borrowers against simple eligibility.
Though a personal loan for debt consolidation is ideal for managing liabilities, borrowers need to understand the linked variables. This includes learning the steps of the loan application.
How to avail of a personal loan for debt consolidation?
The steps to apply for a personal loan for debt consolidation are-
Step 1: Visit a preferred lending institution’s website and select the personal loan from the product tab
Step 2: Fill an application form with personal and professional detail
Step 3: Choose the loan tenor and interest rate and wait for an authority to contact
Step 4: Submit the documents and wait for disbursal.
Apart from the application procedure, individuals should check everything one needs to know about personal loans for debt consolidation. This will help make an informed decision.
Factors to check before availing of a personal loan for debt consolidation
Having multiple loan accounts can force a borrower to depend on savings.
Failing to make timely repayments accumulates interest which again increases the risk of debt. It can further reduce a borrower’s creditworthiness and reliability.
Availing of a debt consolidation loan can help an individual to reduce the repayment burden.
Here are some factors that a potential borrower must check to make an informed decision:
1. Multiple liabilities into one
Keeping a tab on the repayment structure and arranging funds for EMI payment can be difficult considering the current situation. The problem enlarges when there are multiple liabilities.
Availing a debt consolidation loan works as a rescue by allowing borrowers to club all outstanding debts. They can avail a fresh personal loan and repay the remaining debts without hassle.
Since the debts are cleared, borrowers can make effective savings and manage their liabilities through a single EMI payment. This will gradually improve the creditworthiness of a borrower.
2. Low-interest rate
Availing a debt consolidation loan further helps reduce the interest obligations. For instance, an individual repaying a higher interest rate on a loan variant can avail of the said credit at an affordable interest rate.
This will help an individual pay off the previous lender’s outstanding balance, making the current obligations reasonable.
It will gradually lower the borrowing cost compared with the expenses incurred when managing multiple loans at a time.
However, a potential borrower needs to find a reliable lender to achieve the said target. For instance, NBFCs like Bajaj Finserv levies affordable interest rates on a personal loan.
They also extend pre-approved offers that make the loan application hassle-free. Such offers are available on financial products like personal loans, business loans, etc. Check your pre-approved offer by entering your name and contact number.
3. Personal loan tax benefits
An individual should know that there is no personal loan tax exemption for salaried individuals as such. However, this is subject to certain purposes.
As per the Income Tax Act of 1961, an individual can claim exemptions on personal loan repayments if the amount is used for business expansion or operation.
While Section 24(b) allows rebates on the online personal loan when the amount is used for home renovation. An individual can claim upto Rs.30,000 as a deduction from the total taxable income.
Against the purchase of a residential property, one can claim upto Rs.2 lakh on the interest repayment.
4. Simple eligibility
The eligibility parameters against a personal loan for debt consolidation are quite simple. The lenders require applicants to fulfill basic parameters. These include-
- A potential borrower must be a resident of India
- An applicant must fall in the age bracket of 20 to 60 years
- An individual needs to maintain a 750+ CIBIL score
- Individuals must be employed in an MNC, private or public company with a stable income.
Clearing these eligibilities will help a borrower gain the requisite funds with ease. However, they need to submit certain documents for validation. Papers like KYC, salary slip, employer ID card, and bank statements of three months must be submitted by an applicant.
Hence, a debt consolidation loan can allow a potential borrower to pay off the outstanding balance without affecting the savings. It is recommended to calculate the potential savings before making an application. This will help understand one’s repayment capability and make an informed decision.