Pros and Cons of Installment Loans for Debt Consolidation

There are many people all over the world that are struggling with their debt. One way for many people to get out is through the use of installment loans for debt consolidation. While this may sound like a good idea, there are also a number of downsides to taking one of these loans out.

The main benefit is that the installment loans can be easier to manage than paying off separate debts. There are many people who would prefer to have one monthly repayment rather than have to organize their debts and split the monthly repayments across the different lenders.

With installment loans, it is also possible to freeze the amount of interest that you are paying and you could end up paying back a lot less money than if you worked at each loan separately. The term of the loan and the interest rates are all agreed upon when you sign for the installment loans, which will mean that you know upfront just how much money you will need to pay back over the term of the loan. With the separate debts, you could find that it takes longer to pay back all of the money and the interest will constantly fluctuate.

Another benefit to opting for installment loans is that you can determine just how much money you can afford each month. This will be agreed upon at the start of the loan and you will not need to overstretch yourself, which you may have to for the separate debts. However, if you opt for smaller monthly repayments, you could find that you pay more in the long term.

The problem with installment loans is that it can be tempting to take out more money than you really need. Just because you see that you can take out 5,000 dollars does not mean that you have to. If you only need 3,000 dollars then that is the maximum that you should take. The problem with taking out more is that you will end up paying more money back in the long term and it will defeat the benefits of the consolidation of debts.

Another problem that you will find is that it could harm your credit rating by using installment loans to pay off your debt. This reason will be added to your credit report so lenders will be able to see that you needed help to get out of your debt; they could think that you are irresponsible with your money. However, the installment loans can also help your credit rating because they can prove that you are able to pay off money over a set term.

The interest rates can be the disadvantage to the installment loans. The problem is that if you already have bad credit you will not be able to gain the lower interest rates. At the same time, the rates will change depending on the amount of money that you borrow. While you may only need 6,000 dollars, you could find that the interest rates drop dramatically if you take out 7,000 dollars. You will need to work out whether this will mean that you pay back less or whether it will stretch your budget too much.