When to consider consolidation loans for bad credit

03/05/2019

When to consider a consolidation loan - for bad credit

With many people living from pay check to pay check because of loan repayments and the high cost of living, a consolidation loan can mean light at the end of the tunnel. But there are factors you need to consider before filling out a consolidation loan application — the basics. We’ve simplified consolidation loans for bad credit in 5 easy-to-understand points.

    1. What is a consolidation loan?

A consolidation loan allows you to combine all your unsecured debts into one monthly loan repayment. You then pay off the new consolidation loan rather than the individual loans you had.

    2. When to consolidate

Should you, for example, have 5 loans you may be battling to pay, or want to reduce your total cost of credit, then you might qualify for a consolidation loan. This means you will no longer pay five different interest rates for your five loans, but you will pay one interest rate for the consolidation loan.

The success of your consolidation loan application very much also relies on your credit record, which is held at various credit bureaux. You’ll need to ensure the following before you apply for a consolidation loan:

  • Your monthly repayment of all your debts shouldn’t exceed more than 50% of your income.
  • You have a good credit record of keeping your loan repayments up to date.
  • Your consolidation loan repayment affordability – can you afford it?

    3. The pros and cons

Consolidation makes it easier for you to afford your monthly repayment and it may result in a reduced interest rate. However, this lengthens your loan repayment period. So although you may be paying less in monthly repayments and in interest, it’s like starting your debt repayment period from scratch. On the other hand, the longer repayment period also means you'll ultimately also pay more interest on your debt.

    4. Where to apply for one

An African Bank Consolidation Loan allows you to combine up to five loans into one single consolidation of up to R250 000 and get one lower repayment. It’s quick and easy to apply for one. You can upload your documents online through our website. These are the documents you’ll need:

  • Identity document
  • Latest payslip
  • Latest bank statement reflecting three salary deposits
  • Proof of residence

   5. How to make it work for you

Here are tips to making sure that the process of consolidating your bad credit works:

  • Budget — creating a budget allows you to allocate money for debt payments, as well as your monthly living expenses.
  • Avoid getting more debt — a smart rule of consolidation is to not take on any more debts as you work on paying the existing one that is now consolidated.
  • Seek professional help — consider the help of a financial advisor. Read here to see how they can help you.

Taking a close look at consolidation loans puts you in a better position to decide whether to consolidate your debts or not. While consolidation loans make it easier to pay off your debt, it requires discipline and commitment to manage your finances better. Make sure you replace your bad spending habits with good ones that will ensure your financial freedom in future.

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About African Bank

Our mission is to be a successful Retail Bank offering a wide range of products and services to the consumers of South Africa. The people who work for African Bank represent the diverse population of South Africa; therefore we are a reflection of you, of all South Africans. We seek to provide value - more than our consumers expect of us. We promise to live our purpose 'humanity through banking' in all that we do and we are confident that we can, because 'We are You'.