Consolidating a loan
This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a country's fiscal approach to consolidate corporate debt or Government debt.
Interest is the fee charged by the creditor to the debtor, generally calculated as a percentage of the principal sum per year known as an interest rate and generally paid periodically at intervals, such as monthly. Although there is variation from country to country and even in regions within country, consumer debt is primarily made up of home loans, credit card debt and car loans.
These require the individual to put up a home as collateral and the loan to be less than the equity available.
The overall lower interest rate is an advantage that debt consolidation loan offers to consumers.
In some countries, these loans may provide certain tax advantages.
Because they are secured, a lender can attempt to seize property if the borrower goes into default.
Debt consolidation is the process of taking out one loan to pay off two or more unsecured debts.
In Japan, an increasing number of student loans are in arrears.
In the UK student loan entitlements are guaranteed, and are recovered using a means-tested system from the student's future income.
Student loans in the UK can not be included in bankruptcy, but do not affect a person's credit rating because the repayments are deducted from salary at source by employers, similar to Income Tax and National Insurance contributions.
The bulk of the consumer debt, especially that with a high interest, is repaid by a new loan.
Most debt consolidation loans are offered from lending institutions and secured as a second mortgage or home equity line of credit.