Debt Consolidation loan is normally a loan which is availed due to low interest rate and to pay so many other unsecured loans. In Debt Consolidation Loan the bank or company mortgage an asset which can be a house as well. In this case Bank has a guarantee and borrower has the opportunity to avail Debt Consolidation Loan on very low interest rate. The customers feel comfortable by dealing with only one loan instead of five loans at the same time. Normally people use Debt consolidation Loan for paying back the money of other many unsecured loans.
In Debt Consolidation Loan the organization or bank which is granting or issuing this loan is allowed to sale the asset against which this loan is borrowed in case of nonpayment. The interest rates which is offered by the lending companies or banks is lower as well as fixed. Most of the times banks and these companies never change the interest rate. The tenure is this loan is longer than any other loan because the interest rate is lower, in this case customer doesn’t feel much load on his shoulder to pay back. The installments are made in the way that looks easy to pay.
Every country and financial institutions of that country has its own rules and regulations according to the banking practices they follow. In some countries it is granted as unsecured loan instead of secured loan in which any asset is mortgaged as guarantee. In some countries students can avail Debt Consolidation Loan to pay their unsecured loans but they have to submit an affidavit that they will pay this back from their future income.
In case of bankruptcy there are different rules to settle Debt Consolidation Loan. Some times its right held with the court who decides what a lending company or a bank can do in this case. On the other hand court can also order not to take the action against the person who has failed to pay back the loan. All the record and evidences are presented to the court. After examining the documents and evidences court decides whether bankruptcy is justified or not.
But in some countries financial institutions have the rights to take action directly against the borrower of this loan. First of all they determine the grounds on which any borrower is claiming bankruptcy then they are independent to take any action as per their rules and regulations which are duly signed by the lender as well as by borrower. They have the right to seize the house or whichever asset against which Debt Consolidation Loan is issued, or make the installments more easy to pay for the borrower after negotiations and bargaining with him/her.
We can say Debt Consolidation Loan is the mother of all loans which is taken to avoid so many loan’s dealing and to pay back previous unsecured loans. The lender and the borrower both feel comfortable in this case because the fix rate of interest suits the lending company or Bank and low rate of interest and long term loan is in favor of borrower.