A loan consolidation combines a number of loans into a single new loan with a lower interest rate and a new payment plan. Loan consolidation has many benefits. A debtor doesn’t have to pay different creditors, but can make one single payment to one creditor each paying period (usually a month). The interest rate is usually lower, and the repayment period will be extended. However, there’s also risk making a loan consolidation. If the term is extended greatly, the interest amount may be greater even if the interest rate has been lowered.
Most lenders look at the debtor’s credit score, income, and credit history in deciding if a debtor’s is eligible for a loan consolidation.
After a loan consolidation, a debtor will generally have a higher credit score if he or she can make the payments on time.
[Last updated in July of 2020 by the Wex Definitions Team]