This is an article by Isabella Rossellini. She is a renowned financial advisor who has worked with a number of multinational corporations throughout her career. Debt consolidation loan is her area of expertise. Feel free to follow her on Google+, Twitter, and Facebook.
Debt consolidation is a great solution for business debts, and can be a great way to resolve financial burdens in a striving business. But while you are getting ready to put in all efforts on this, you must think smart. A little homework can save you a lot of harassment later. Your goal would be to get a loan that is being offered at a low rate of interest, and with a long term repayment plan. When you get both of these together, you crack the best debt consolidation deal. Debt consolidation can be obtained step wise, as you match on with these following steps, and see how well you qualify, and how you measure the pros and cons.
Calculating your outstanding debt
This is the first step towards debt consolidation preparation. When you have a lot of loans scattered here and there, you need to make a complete list of all the loans first. Next you will have to find out exactly how much you need to pay for each loan to close if you want to close today. This will include the interest and the premium amount together. When you get this calculation for all the loans that are running now, you can add up their values to get the full and final amount which you will need on the current day to close all of them together.
How much prepayment penalty you will have to count
Most loans are approved with a prepayment penalty amount which is written on the loan agreement. A prepayment penalty is that amount, which you will have to pay if you close a loan before the full tenure. The lender will take a penalty from you for making up for their losses which they will be incurring for not getting the remaining interests from you due to early closure. The loan agreement contains details of this prepayment penalty. You need to find those clauses and read them well to know how much you will have to pay if any, and when. When you get the amount, you must add them up with the current day closing amount for the loan. This will give you the final amount for closing the loan on the current day.
Often due to this penalty, a debt consolidation also may show little profit to you. But you must calculate that in the longer run, how much it will be easing you off from the burden of multiple interest payments.
The final calculation
The final calculation of your consolidated amount will be the total loan amount that needs to be paid to close all loans at once on the day, and also the pre payment charges which most of the loans will impose on you. When you accumulate all that, you get the final amount which you need for consolidating all of your debts.
Calculating the APR
There are factors like the interest rates, loan terms, amortization frequencies, interest calculation etc. which make two or more loans look the same sometimes, while in reality their interest rates vary a lot and the APR also varies. You may need to make accurate calculations using an APR calculator. It’s only after you have calculated the APR for all the loans that you will be able to decide if a new single loan will be of any help or not.
Surfing through the options
Now you know the final loan amount you need and the perfect APR too. Hence, your homework with the initial calculations is done. Now, you will have to find out and surf through all the possible loan options. Banks and private lenders, short term lenders, and SBA loans, all types need to be explored by you.
You will have to collect quotes, and find out which option is the most profitable for you. Being the busy business owner, you may not have all the time in the world for all such researches and market surveys for the right quote. You may employ a financial adviser and loan expert for his too. But this research is really important to get to the next step.
Comparing the APRs
After you have narrowed down your search to one of the debt consolidation options, your next job will be to compare the proposed APR of the new loan to the exiting APR that you calculated in step 4.
Amortization schedule preparation for the consolidated loan
You need to prepare a new amortization chart for the debt consolidated loan. And in this chart, you will get the exact amortization rates you guide you accurately.
Apply for the loan
With all the homework done, you may now apply for the debt consolidation loan. Just make sure that all the calculations, time and effort given on research turns up to be fruitful.
Enjoy the lump sum cash – It is payback time!
As your loan gets approved, you get a big amount as the loan, and you can now distribute it to pay back all your existing loans.
The right trackback will save you from getting creditor calls and being a defaulter. Now that you have consolidated the loan, you need to pay at one place. And you must never miss paying that on time. That was the whole story about to make it convenient for you in every possible way. And hence you must enjoy the relief and pay back the interests in a timely manner every month.
Debt consolidation is a tricky process, and you must be sure that you don’t do any mistakes. There have been many such instances, where borrowers consolidated their debts and got into a new loan to escape from old high paying loans just to enter into an even more high interest loan. Hence, a clear talk is much important with the debt consolidating broker, company, and agent or whoever you are dealing with. Refinancing and debt consolidation helps highly when you are educated about what you are doing and how it will work for you.