Debt Consolidation Loan vs Personal Loan
Compare consolidation and personal loans, including purpose, fees, creditor payment and total repayment cost.
Why the labels can be confusing
A consolidation loan is often a personal loan used for a specific purpose: settling other debts. The important question is not only the label, but how the funds are used, what the rate is and what the total cost becomes.
How funds reach creditors
Some providers may pay creditors directly. Others may pay you and expect you to settle the accounts. Direct settlement can reduce the risk of spending the money elsewhere.
Compare rate, fees and term
Ask for the rate, initiation fee, monthly service fee, repayment term, total repayable and settlement conditions on the old accounts.
When neither is appropriate
If you cannot safely afford the new instalment, a new personal loan may deepen the problem. Repeated applications can also hurt your credit profile.
If the new loan only works when you ignore groceries, rent, school costs or transport, it is not affordable.