Government debt consolidation loans

Consolidation loans come in different forms with different conditions. A government debt consolidation loan however is a loan given by a government program or agency in order to help a person pay off debts he or she owes to multiple institutions. There are a number of reasons why government entities extend loans to citizens but in most cases its meant to facilitate financial transparency and create more fluidity in the market place.

In this instance, it means that the debtor surrenders outstanding balances to a government organ which will pay it off and issue a new loan representing the balance owed and some interest. This means that the interest rate in this regard doesn’t change unless the borrower fails to make payments or defaults. This does not happen suddenly as loan terms and conditions are agreed upon from the onset.

Consolidation loans normally come in four broad types and these are standard payback plan, extended payment plan, graduated payment plan and the income contingent plan. The standard payback plan sets a general monthly payment amount that is consistent over the loan period. Extended payment plan is the complete opposite because it increases the time of the loan by decreasing the monthly payment but with a higher interest rate. The graduated plan is a combination of both because it starts out with a lower monthly payment amount but increases after a specified time period. Income contingent plan takes the borrowers salary and earning potential into account when setting the monthly repayment rate, this plan is not for everyone but rather for those individuals who are in the lower-income brackets.

The benefits of this loan includes the fact that it’s convenient because instead of making several payments, borrower only makes one payment to a particular institution. Convenience also implies that the borrower doesn’t worry about different monetary  arrangements and rules from diverse lending houses. Monthly payments are also lower which makes repayments easier and leave some cash for saving or spending purposes.

These loans are available for various debts but it also depends on national jurisdiction, agency availability and local laws. Making repayments on time and promptly will also make this a suitable option for individuals and families with multiple debt accounts.

Government debt consolidation loans

Categories: Loans

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