Online Debt Consolidation Loan: Meaning, Process, Eligibility & Benefits

An online debt consolidation loan enables an individual to take out a single loan from which various outstanding debts can be repaid. This online method of borrowing does not necessarily have to involve all the processes that accompany traditional loans. Some of these may include application, submission of documents, and verification, which can now be done online. Despite their convenience, online debt consolidation loans do not necessarily imply cheaper borrowing. It is crucial to know the interest rate, fees, loan term, loan requirements, and repayment amounts before taking up an online debt consolidation loan.

Key Takeaways

• Online debt consolidation involves consolidating several debts into a single payment.
• Compare the interest rates, charges, duration, and costs associated with the repayment.
• Prepare your identification, income, and bank statements in advance.
• Video-based KYC may help in simplifying the process of taking loans online.

• Be careful about your budgeting to avoid being trapped in debt again.

Online Debt Consolidation Loan: Meaning & Functionality

An online debt consolidation loan is a loan that can be applied for using the lender's website or mobile app to consolidate several debts into a single repayment liability.

Instead of repaying multiple EMIs individually, the borrower can use the loan amount to settle the eligible existing debts. The borrower then starts making repayments towards the consolidated loan, taking into account its duration and interest rate.

As per the lender, the following are the primary steps in the whole procedure, which can be completed digitally:

• Online Application: Applying for the loan through the lender's website or mobile app.
• Documents Upload: Uploading the necessary identity, income, and bank documents.
• Verification: Completing the Video-based Customer Identification Process (V-CIP), wherever applicable.
• Disbursement: Post the approval of the loan application, disbursement of the loan amount, repayment of eligible existing debts, and other lender-specific processes.

‘100% online’ doesn't necessarily mean that all lenders make it mandatory to remove physical verification.

Also Read: Debt Consolidation Loan Eligibility: Check Criteria & Documents Required

Is the Video KYC Option Available for Debt Consolidation Loan Online?

Yes, several online lending institutions provide a Video-based Customer Identification Process (V-CIP) for the online loan application process. According to the guidelines provided by the RBI, a V-CIP process is equivalent to a face-to-face identification procedure within its KYC guidelines.

Within the Video KYC process, the borrower is likely to communicate with an authorised agent over an audio-visual call session. The process also involves authentication of one's identity through various procedures to confirm that the individual conducting verification is authentic.

The borrowers are expected to ensure that they have their documents handy and that they have a reliable internet connection and adequate lighting at their place.

Documents Needed to Apply for an Online Debt Consolidation Loan

This will vary based on the lender and profile of the individual applying for the loan. However, some of the common documents that may be required include:

Document	Purpose
PAN Card	Identity and financial verification
Aadhaar or another accepted OVD	Identity verification

It is good to have these documents prepared prior to initiating the application process.

How to Apply Debt Consolidation Loan Online? 

The loan application can usually be made as per the following steps:

Step 1: Calculation of Outstanding Debt

You should first list out all the personal loans, credit card balances, and other such eligible unsecured debts that you want to consolidate. You must take note of the outstanding principal amount, interest rate, EMI, and tenure for each debt.

Step 2: Eligibility Assessment

Before you make a complete loan application, check whether the lender offers an eligibility assessment based on a soft enquiry. A soft enquiry, where used, does not affect your CIBIL score. However, not every lender offers a soft enquiry-based eligibility check, so confirm the lender's process before proceeding. 

Step 3. Submit Online Application

Provide all mandatory personal, employment, and financial information via the lender’s website/application. Ensure that the provided data is consistent with official documents to minimise the chances of authentication errors.

Step 4. Attach Mandatory Documents

Upload mandatory documents like PAN card, proof of identification, income-related proof, and current bank statements. Providing readable documents will help prevent any processing delays.

Step 5. V-KYC

In case the lender offers the V-CIP option, you will have to undergo live video authentication. While V-CIP can allow customer identification to be completed digitally, it does not necessarily rule out the need for additional physical verification. The lender may require an offline step depending on its process and applicable requirements. 

Step 6. Examine the Offered Loan

Don’t take an offer just because it offers you a lower EMI. Consider the interest rates, processing fee, tenure, total repayments, and foreclosure conditions, along with all the other related costs.

The Key Fact Statement (KFS) also needs to be considered carefully because it contains important details about your loan’s terms and costs.

Step 7. Obtain the Loan and Pay Off Your Existing Debts

Once you get approved for the loan, it will be disbursed based on the conditions set by your lender. You can use the loan amount to pay off your existing eligible debts and consolidate them into one. After making the required repayments, make sure that the outstanding balances with the old lenders have actually been paid off and that the respective accounts are closed or updated as applicable. 

Will an Online Debt Consolidation Loan be Cheaper?

Being online does not necessarily mean that the loan will come at a cheaper cost. This will depend on factors like interest rate, processing cost, repayment period, and other costs.

The reduced EMI might seem alluring, but it can just be the effect of an increased repayment period. An extended repayment period will mean more total interest being paid despite having a reduced EMI.

When changing to the consolidation loan, consider the following:

• Interest rates currently versus the new interest rate

Address proof

Required when the current address differs from the available identity document

Salary slips

Income verification for salaried applicants

ITR documents

Income verification for self-employed applicants

Recent bank statements

Verification of income, transactions, and existing EMI payments

EMI amounts currently versus the EMI of the new loan

Duration left to repay the old loans

Processing cost and other costs

Total interest to be paid

Prepayment cost of old loans

Repayment total of the new loan

The aim should be to simplify repayments without making the process more costly.

Problems That Can Occur While Applying Online

Even though applying online is convenient, borrowers can encounter some problems as well.

• Mismatch of documents: There can be a problem with the inconsistency of information in PAN, identification documents, and bank statements.
• Low-quality documents: Blurry and incomplete documents can be declined and have to be uploaded once again.
• Failure of Video KYC: Poor internet connection, poor lighting, or other technical problems can hamper the process of verification.
• Physical verification: Sometimes the lenders can ask for an offline step even when you apply online.

What should you verify before opting for an online debt consolidation loan?

The following checklist may come in handy while considering taking an online debt consolidation loan:

• The total amount owing on the eligible debts needs to be worked out.
• The current EMI burden, along with monthly income, must be checked.
• The interest rate of the loan must be compared with the present rates of borrowing.
• See if the eligibility check involves a soft or hard enquiry.
• All necessary identity, income proof, and bank-related documents must be kept ready.
• Check if the Video KYC option is there.
• See if physical verification is mandatory.
• The key fact statement must be read before accepting the loan.
• The total cost of repayment should be considered instead of the EMI alone.
• Processing, prepayment, and foreclosure charges must be verified.

 

How Does LoanLogic Help With Debt Consolidation Loans Through the Internet?

LoanLogic makes debt consolidation easy for people through an online platform that enables comparison of loan amounts, interest rates, tenure, qualification, and fees for various loans. The process is very easy since it saves time and allows people to find out which type of loan suits them.

Conclusion

The convenience of having a consolidation loan to pay off debts should be weighed against affordability. It is essential that borrowers compare different loans and fully comprehend what their lenders require before applying for such a loan. This way, people will be able to repay their debts in a structured manner without imposing additional financial stress on themselves.

FAQs

1. Will a consolidation loan have an effect on my credit score?

The process of taking out a new loan will temporarily impact your credit score because the lender can list the loan on your credit record. But with regular repayments made on schedule, you will build up a better credit score eventually.

2. Can I use a personal loan to pay off credit card debt?

It is possible depending on whether the lender allows credit card debts to be consolidated through the loan. You should check the list of eligible debts allowed by the lender before submitting your application.

3. What happens to my existing accounts after consolidation?

Your existing accounts will typically be closed or settled once the outstanding balances are paid off in full. This depends on the procedures followed by the lenders.

4. Are self-employed people eligible for online debt consolidation loans?

Lenders who offer debt consolidation products targeted at such borrowers can accept self-employed loan applicants. Their eligibility will be determined based on parameters such as income from business, financial history, banking background, and ability to repay.

5. Is it right for me, considering that my income is not steady?

It will be challenging to make monthly installments if the income varies greatly month-by-month. Loan applicants need to determine if they have enough cash flow to sustain the repayment over the course of the loan.

6. Can I consolidate my secured and unsecured debts together?

Debt consolidation products do not always allow consolidation of both types of debt into one loan. Applicants are supposed to review the conditions offered by lenders, as some may limit consolidation to certain types of unsecured debt.

7. How is debt consolidation different from debt settlement?

Debt consolidation entails replacing your debt with a new repayment program, whereas debt settlement is settling a debt by means of negotiating for less money than owed. Debt consolidation vs debt settlement may lead to different outcomes when it comes to your finances and credit score.

8. Can I make additional payments on my consolidation loan?

The option of making additional payments or partial prepayments depends on the loan terms that are available for the particular lender. It is recommended to check the terms and conditions before making an additional payment.

9. What will happen if my consolidation loan is denied?

Just because your loan application is denied, it doesn’t mean that you won't be able to obtain a loan in the future. Find out why your loan was denied and avoid sending multiple applications right away.

10. What is the best way to ensure that I don’t get myself into the debt trap once more after consolidation?

It is advisable to create a practical budget for yourself, as well as to try to avoid borrowing money to stop yourself from getting into more debt.