What Are The Interest Rates For Debt Consolidation Loans?
Credit card debts and other types of consumer debts surely has a huge interest as compared to the interest rates that you’ll have when you get debt consolidation loans. This is one of the primary reasons why most Canadians find refuge in getting consolidation loans. Also, it is the reason why debt consolidation loans are a famous debt relief option in Canada. Besides, consolidating your debts in Canada is conceived as the most favored means by many to get out of debt.
Furthermore, if you get a debt consolidation loans, you can save as much as 5% in paying for your debt interest. Your interest rate in debt consolidation is calculated based on your credit score, and if your credit is in good standing, you can exceed 10% savings in your interest payments. In general, if you’re paying a 10% interest in your debt, a consolidation loan will trim it down for 5%. This way, you save more money in consolidating your debts through consolidation loans. Although it may take you longer to pay your consolidation loan, if you pay more then the minimum by adding the money you save in your monthly payments, you can pay off your loan in a shorter period.
With several debt relief options in Canada, knowing your options will help you understand the type of debt consolidation loans. By doing so, you will have a wide knowledge as to which debt solution suits you best.
There are various types of debt consolidation loans, and understanding each can increase your awareness of how they differ in terms of interest calculations.
In This Guide...
Difference between Fixed-Rate and Variable-Rate Loans
When you consider a debt settlement plan, you don’t necessarily need to take the rate types of your loans into consideration. However, getting a debt consolidation requires an understanding of the loan rate types. In debt consolidation, you have two options, namely fixed-rate loans and variable rate loans.
In fixed-rate loans, your interest charges will not change for the entire duration of your term; regardless of the market condition, your interest will remain constant. On the other hand, in variable rate loans, your interest charges will vary over the period. So, every period that your interest changes, your minimum payment each month will also increase or decrease in relation to the variation of your interest rates. Moreover, both types are accessible may it be through a debt consolidation or when getting expert credit counselling assistance.
Types of Debt Consolidation Loans
All of the debt consolidation loans accumulate either a fixed rate or a variable rate. Below are some of the types of consolidation loans that you can obtain.
Home Equity Line of Credit (HELOC)
A HELOC is a type of loan that is protected by the investment in your home and normally takes a variable interest charge. Since it is a revolving line of credit, it is only available if you have a good credit standing.
Revolving Credit
Revolving credit means that if you pay a percentage of the amount that you owed, you can renew that amount and have it available for you to loan again. Revolving credit differs from a contemporary loan wherein you need to repay the amount that you borrowed once, pay it in full and you’re done.
Example: If you are approved for a $60,000 home equity and use $30,000 to pay your other obligation, you’ll be left with $30,000 as an available credit. When you pay $10,000 into your home equity loan, you’ll be eligible for a $40,000 worth of credit which you can use to any means you prefer.
Home Refinance Loan
Most individuals refinance their home and lend beyond how much they need to pay off their consumer debt with high-interest charges. This is because they can get a lesser interest rate in terms of their mortgage. A refinance loan can be obtained both variable interest and fixed interest rate.
Second Mortgage
In getting the second mortgage, you obtain upon the cost of your home yet maintain the first mortgage. The aforementioned gives you two repayments for your mortgages every month. However, it may be significant if you can acquire an ample reduction in your interest that you can use to pay off your entire consumer debt.
Consumer Loan
A consumer loan is termed as a personal loan that is not protected by any of your assets. Most individuals actually obtain a consumer loan that they have to settle to shun ending up filing for bankruptcy or a consumer proposal. It is considered to be beneficial in cases wherein you can get a good deal in terms of interest charges. Besides, a consumer loan can have both a variable interest rate or a fixed interest rate.
How Debt Consolidation Loan Interest Rates are Calculated?
The interest rates in your consolidation loans can be foreseen through the market bond and its prime interest rate. In your consolidation is obtained via mortgage products, your bank will come up with the variable rate based on the result of the established-prime interest rate minus percentage points of your prime interest. On the other hand, if you get a loan for a fixed-rate mortgage, your interest rate is set by the market bond. This means that the going rate for market bonds allotted by the Canadian government is added with 1% to 2% on top of it to calculate your desired interest rates.
In general, debt consolidation loans may have the same calculation as the aforementioned result on mortgage loans or may vary depending on the stipulations set by the bank. The bottom line is if you have a good credit standing, you will likely get better interest deals than having poor credit.
Is a Debt Consolidation Loan Right for Me?
Before you take a big leap in getting into a debt relief program, you should understand whether it is the right debt solution for your situation. It is ideal to seek expert advice and guidance before you decide. To help you in making sound judgment, simply fill out the debt relief form on this page.
