It’s never easy to live under debt especially if you are already struggling financially. Due to tough economic conditions, almost every other person nowadays is dealing with debt issues. Fortunately there are multiple debt relief options available for people who aren’t able to pay off or manage their debt. Especially if you are dealing with multiple high-interest debts and want to manage them then debt consolidation is the best way out.
Naturally, to get a debt consolidation loan people first look into their existing banks and it makes sense because your bank already knows you. However, is it always safe and smart to consolidate your debt with your bank? Is the loyalty really worth it or should you explore other banks and programs? Let’s break it all down for you so that you can make a more informed decision.
Getting A Debt Consolidation Loan From Your Own Bank
It’s absolutely possible for you to get a debt consolidation loan from your own bank because most credit unions and traditional banks do offer personal loans to their customers. Especially if you have a checking or savings account in a good standing then there are chances that your bank will be more willing to work with you.
However, approval isn’t always guaranteed and there are some other important factors that your bank will first assess;
- Your credit score
- Your employment history
- Your debt to income ratio
- Your loan repayment history (with the bank).
How Does It Work? Step By Step Guide
1-Review Your Debt
Make a list of all your current debts, monthly payments and interest rates.
2-Check With Your Bank
Visit your bank or contact them online. Ask whether they offer personal loans or other debt consolidation options.
3-Apply For The Loan
Provide all your important financial details including your debts, income and credit score. The bank will then assess your credit to ensure your eligibility.
4-Loan Approval
If your bank approves your loan, you’ll either get the funds directly into your account or your bank will directly pay off your creditors.
5-Start Repaying The Bank
Start making your monthly repayments to the bank over the decided period of time (12 months to 24 months).
Pros Of Getting A Debt Consolidation Loan From Your Own Bank
Here are some convincing reasons that explain why you should get your consolidation loan from your own bank;
1-Trust And Familiarity
Getting a consolidation loan approved is a hassle but if you have a good financial relationship with your bank, chances are that they’ll approve your loan easily. If you’ve maintained a positive financial history with your bank, the trust and familiarity will work wonders in your favor.
2-Easier Application Process
Your bank already has all of your important financial information which means that you’ll have to go through less paperwork and the approval process will be quicker.
3-Discounts And Loyalty Perks
Traditional banks always make extra efforts for their customers and the same is the case with debt consolidation loans. When a loyal customer applies for a consolidation loan, banks offer discounts and loyalty perks, including;
- Waiving off the application fees
- Discount of 0.25% APR for autopay
- Quicker disbursement of funds
4-Easier Account Management
It’s easier to manage your account when you have everything in one place. Also, with your existing bank, you won’t have to worry about missed due dates.
Cons Of Getting A Debt Consolidation Loan From Your Own Bank
1-You Won’t Always Get The Best Rate
It’s not necessary that your bank will offer you the most competitive interest rates. Sometimes other banks and credit unions offer more flexible terms with lesser interest rates.
2-Limited And Strict Loan Terms
If you are getting your loan from a traditional bank, chances are that they’ll offer stricter and limited loan terms. Alternative lenders might offer you more flexible repayment terms.
3-Approval Isn’t Guaranteed
Even if you’ve been really loyal with your bank and have a good standing account, it won’t guarantee you loan approval. Banks usually rely on your credit score, your income and your repayment history to grant you a debt consolidation loan.
4-Hard Credit Inquiry
Getting a debt consolidation loan involves a hard credit inquiry and that’ll have a negative impact on your credit score especially if your bank denies the loan approval.
Common Misconceptions When Getting A Debt Consolidation Loan From Your Bank
“Your Bank Will Offer You A Better Deal”
Your loyalty with your bank can help you marginally but that doesn’t necessarily mean that your bank will offer you the best deal. You might get a small rate discount but your debt to income ratio and creditworthiness would still be assessed.
“You Can Only Consolidate Through Your Bank”
You aren’t necessarily bound to consolidate through your bank. In fact, there are multiple other banks, credit unions and online lenders that can offer you a better deal with lesser interest rates.
“Consolidation Will Waive Off All My Debt Issues”
Debt consolidation is no magic and it’s specifically not a tool that can fix your debt issues overnight. You’d still require a proper repayment plan with spending discipline to ensure that you don’t end up into deeper debt.
“Debt Consolidation Will Improve My Credit Score Overnight”
Some people believe that debt consolidation will help improve their credit score overnight which isn’t true. Yes it will improve your score but only if you reduce your credit utilization ratio and maintain a proper payment history. In fact, after debt consolidation your score might take a temporary dip especially if you close your older accounts.
Should You Consolidate Your Debt With Your Bank?
Still confused whether you should get a debt consolidation loan from your own bank? Here’s a quick matrix that can help you make a better decision.
| Situation | Consider Your Bank? |
| Loyalty perks, good standing account, long financial relationship? | Yes |
| Average or poor credit | Consider a credit union or an online lender |
| Need quicker access to funds? | Your bank can come in handy |
| Your bank denies your loan application | Try other lenders or work on your credit score first. |
Final Verdict
Getting a consolidation loan from your own bank can be more convenient and beneficial but only if you meet the certain requirements. Sometimes, other online lenders, credit unions and banks offer more flexible repayment terms and better interest rates so it’s important that you explore all your options first. Make sure to read the fine prints and ensure that the new loan will help improve your current financial situation. Debt consolidation is no magic, it won’t help you get rid of your debt, in fact, it’ll make your debt more manageable and you might as well save some money on the interest. To ensure it works, you must have a solid plan first, maintain your repayments and focus on disciplined spending.
FAQs
Q1. Will My Bank Offer Me Better Rates Because I Am A Loyal Customer?
Not always. It’s not necessary that just because your account with your bank is in a good standing, your bank will offer you better rates. Yes, there are some special perks offered by some banks (rate discounts for autopay for a checking account). However, your credit score, your debt to income ratio and your income plays a bigger role in determining whether you’ll get your desired interest rates or not.
Q2. Will Applying For A Debt Consolidation Loan With My Bank Affect My Credit Score?
Yes, when you apply for a debt consolidation loan with your bank, they’ll do a hard inquiry check and that’s what will cause a temporary dip in your credit score. If you simply want to check your rate, it’ll involve a soft inquiry which is harmless for your credit score.
Q3. What Credit Score Is Required If I Want To Consolidate Through My Bank?
For unsecured personal loans, most banks require a credit score of 660 to 700 but it’s not the same for all banks so you should always first check the minimum score requirement with your bank. If you have a good banking history and a good income, chances are that your bank will offer you options with lower scores as well.
If your existing bank isn’t offering you the best deals then try exploring other personalized consolidation loan options with Mountains Debt Relief. Contact Now!