Can I Get a Loan To Pay Another Loan?

Are you feeling choked up with a lot of debt? A lot of people have considered consolidating their loan to pay loans as a result of financial issues and circumstances.

The loan will help you get the previous one paid and you will still be left stranded for the other one. Read through to gain more insight.

Definition of Loan

A loan is an amount of money, property or other materials given to someone that would have to be exchanged in future. Loan does not have to do with money alone but it involves other things listed above. There are two parties involved in a loan, which are the borrower and lender.

The borrower is the individual receiving the money. While the lender is the institution or individual providing the money.

Popular Terms Used In Loan

Principal: This is the total amount of money borrowed.

Interest : it is the fee charged by the lender that the borrower must pay aside the money borrowed.

Repayment term: it refers to the time frame you will have to pay the loan back.

Collateral: The collateral is an asset you would have to drop in case you are unable to meet up with the payment of the loan.

Types Of Loan

1. Secured loan: This is the type of loan that is backed by collateral. That is, it is secured by property like cars, houses and so on.
2. Unsecured loan: This is the opposite of a secured loan. It is not backed up by collateral. It has to do with personal loans and credit cards.
3. Revolving credit: It allows you to borrow and repay within a credit limit.

Why People Take a Loan

1. People take out loans to finance their large purchases. Which includes cars, houses and so on.
2. To combine multiple debts into a single loan.
3. To cover unexpected emergencies.

Effect Of Loan On Your Credit Score

The loan can affect your credit score negatively or positively.

When you pay on time, it increases your score but when you pay late, it reduces your score.

Getting a new loan can lead to temporary score dips.

Factors To Consider Before Taking a Loan

Know your needs and payment ability.

Visit different lenders and compare their interest rates, fees, terms and conditions and know the one that works well with you.

Make sure you can afford the monthly payments.

Be aware of the impact of the loan on your credit score.

Can I Get a Loan To Pay Another Loan?

Getting a loan to pay another loan is possible, but it depends on you and there is a need to put some things into consideration before you know the right answer and make the decision that works for you.

Read through as you know the right answer to your question.

Benefit Of Getting a Loan To Pay Another Loan

• Low interest rate:

A new loan will offer a lower interest rate compared to the previous loan you collected. It will help you reduce your interest rate and also make your repayment easy.

• Easy management:

Paying up multiple debts at once into one loan can make your finances easy instead of requiring several payments.

• Good credit score:

If you responsibly manage the new loan, making sure you pay on time then it would reflect positively in your credit score.

Demerit Of Getting a Loan To Pay Another Loan

• High Debt:

Requesting for a new loan increases your debt in general even if the interest rate is low.

• Fees:

Different charges associated with the new loan can make your financial burden more. Examples are application fees, origination fees and so on.

• Risk of default:

If you find it hard to manage the new loan payment, there is a probability that you will fall into more debt and also damage your credit score.

• It is not a magic solution:

You must address the reason for your debt before you use another loan for consolidation.

Other Alternatives Before Getting A Loan To Pay Another Loan

• Debt management plan:

Speak to a credit counselor,  they will help you plan and manage your debt. They will also help you negotiate lower interest rate with your creditors.

• Balance transfer credit card:

Your balance transfer credit card will allow you to pay up high interest debt during your promotional period.

• Negotiate with your lender:

Meet with your lender and negotiate for a lower credit interest and a repayment plan method that will favor you.

Things To Consider Before Getting a Loan To Pay Another Loan

• Know your financial situation. That is, your ability to manage more debts, your income, expenses and many more.

• Go around for the best loan term that fits you and works with you. Check out for interest rates, fees and repayment terms and go for the one that is okay for you.

• Check out a debt management plan before going for a new loan.

• Meet with professionals like credit counselors and financial advisers, they will give you professional guidance. 

Conclusion

To sum it up, getting a loan to pay another is a decision you must carefully think about before arriving at a conclusion that you would do it.

Please know what works for you and make sure you follow the due process. 

Questions:

1. Can I get a loan to pay another loan?

Ans: Yes, depending on your circumstance

2. Is it okay to consult a credit counsellors?

Ans: Yes, you can seek the counsel of a credit counsellor.