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Simple English definitions for legal terms
loan consolidation
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A quick definition of loan consolidation:
Loan consolidation is when you combine several loans into one new loan with a lower interest rate and a new payment plan. This means you only have to make one payment each month instead of many. It can help you save money on interest and make it easier to manage your debt. However, if you extend the repayment period too much, you may end up paying more in interest in the long run. Lenders will look at your credit score, income, and credit history to see if you qualify for loan consolidation. If you make your payments on time, it can also help improve your credit score.
A more thorough explanation:
Loan consolidation is the process of combining multiple loans into one new loan with a lower interest rate and a new payment plan. This means that instead of paying different creditors, the debtor only has to make one payment to one creditor each month.
For example, if a person has three different loans with different interest rates and payment schedules, they can consolidate those loans into one new loan with a lower interest rate and a longer repayment period. This can make it easier for the debtor to manage their finances and make payments on time.
However, there are also risks involved in loan consolidation. If the repayment period is extended too much, the debtor may end up paying more in interest even if the interest rate is lower. Lenders usually consider the debtor's credit score, income, and credit history before deciding if they are eligible for a loan consolidation.
After a loan consolidation, the debtor may have a higher credit score if they make their payments on time. This can make it easier for them to get approved for future loans or credit.