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What is a Debt Consolidation Loan and How Does it Work?

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Debt Consolidation Loan

Debt consolidation is the act of clubbing all your existing loans together and paying them off as one single debt.

The biggest advantage of taking a debt consolidation loan is that you don’t have to worry about connecting with multiple vendors for repayments. There’s no need for managing multiple credit cards and the EMIs you pay are dedicated towards a single big loan.

There are some cases where you cannot apply debt consolidation. For example, you cannot take a debt consolidation loan for paying off pending EMIs for liable or secured assets (such as a home loan).

However, for unsecured loans like personal loans, education loans, and credit card dues, you can apply for a debt consolidation loan to clear them up.

Some organisations these days offer secured debt consolidation loans for individuals where they put up their property or business assets as the collateral.

Unsecured debt consolidation loans are hard to apply for and charge higher rates of interest. Most banks aren’t willing to give out individuals unsecured debt consolidation loans but there are NBFCs, fintech startups, and private organisations that disburse these loans as long as the borrower’s profile is verified and they demonstrate sufficient creditworthiness.

The best part about these loans is that the interest rates remain fixed and do not fluctuate. This means your monthly EMI repayments stay the same and don’t suddenly change, thus giving borrowers peace of mind.

Advantages of Debt Consolidation Loans

Debt Consolidation Loan

There are various reasons why you’d want to opt for a debt consolidation loan. Here’s a list of the benefits:

  • One Single Liability – It’s hard enough to keep track of multiple EMIs and repayment. Going for debt consolidation takes care of this legwork since your lender takes care of the communications. Your only duty is to make sure you make your EMI payments on time for the debt consolidation loan you applied for.
  • Lower Interest Rates – With multiple different loans, you have varying interest rates. But with a debt consolidation loan, you have to worry about a single interest rate. The payoff is lower too and it makes the monthly repayments lesser too.
  • Paperless Process – If you’re applying for a debt consolidation loan online, you’ll find that the entire process is paperless. You can file your application digitally and you’ll find that lenders disburse the amount in just a few days if you meet their borrower requirements.
  • Flexible EMI Tenure – Debt consolidation loans can have a flexible repayment tenure of anywhere between 2 years to 20 years. Self-employed individuals can get a tenure of up to 18 years while salaried individuals are liable for more.

Debt Consolidation Loans vs Debt Settlement

The key point to remember about debt consolidation loans is that they don’t completely erase all your debts. They simply club your loans together and transfer them to a single lender. As a borrower, you become responsible for making repayments to a single lender.

Debt settlement works a bit differently and aims in providing credit relief to borrowers. Here, negotiations are done with lenders to reduce the loan amount or interest rates instead of cutting down on the number of lenders by transferring the debt to an organisation.

There are many credit counselling services and organisations that help in doing debt negotiations with organisations and providing relief to borrowers, although they don’t directly give out any loans on their own.

How Does It Work?

Let’s say you’ve taken a loan of Rs 1 lac over a period of 2 years with an interest rate of 12%. And you have another loan of Rs 2 lacs which you have to clear within a year, its annual interest rate being 10%. The monthly EMI payments for each of these loans may come to around INR 5170 and INR 5830 respectively.

With a debt consolidation loan, your monthly EMI payment would amount to INR 6000 combined. However, the trade-off is that you get a longer tenure for making both the repayments on your existing debts. Instead of making multiple payments to lenders, you can now make a single EMI payment every month and end up saving money on interest. The longer tenure also gives you peace of mind as you know that you can handle your repayments a lot better. Debt consolidation gives you a favourable structure for making repayments and makes it convenient to pay off multiple small loans together by applying for a big loan.

Make sure you identify all your financial obligations and liabilities before going for this type of loan. It’s always a good idea to talk to an advisor before applying for debt consolidation if you’re not sure whether or not to go for one based on your financial circumstances.

What Are The Eligibility Requirements?

If it’s your first time applying for a debt consolidation loan, you’re going to have to make sure your KYC documents are with you. Lenders look for documents such as:

  • Proof of employment and stable income (at least 2 months’)
  • Letters from credit agencies
  • Bank statements
  • Proof of Identity

You must also be a resident of India and be 25 years of age or older. If you’ve been self-employed for years and have taken loans before the age of 23, you can still go ahead and apply for a debt consolidation loan before this age limit criteria. Your lending organisation will decide which creditors you pay off after your debt consolidation loan is approved. The way this works is you pay off your highest-interest loans first and clear up the remaining ones over time.

However, some organisations may allow you to pay lower-interest loans in the beginning and later clear the higher-interest ones. This will depend on your lender whom you’re applying for a debt consolidation loan through or the lending organisation. Additionally, you will have to demonstrate your creditworthiness and show your CIBIL Score when applying for these types of loans.

How Does A Debt Consolidation Loan Affect Your CIBIL Score?

If you take a debt consolidation loan and pay off the principal portion of your loan sooner, it can attract various credit lending organisations to your profile. The sooner you clear out the existing loans, the higher your CIBIL rating will be.

Also, the period involved in making all your repayments becomes shorter since you’re clubbing different debts into a single EMI. Overall, it makes it much easier to manage your existing debt repayments. You can also get a much more reasonable interest rate when you go for debt consolidation and sometimes, you can cut that number to one-thirds depending on what your current CIBIL rating is like.

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London Stock Exchange Lists Ecobank Nigeria’s $300m Bond

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Ecobank London Stock Exchange

By Aduragbemi Omiyale

The five-year fixed rate senior unsecured $300 million bond issued by Ecobank Nigeria Limited has begun trading on the floor of the London Stock Exchange (LSE).

This followed the listing of the corporate debt instrument on the respected trading platform on Thursday via a virtual ceremony witnessed by officials of the exchange and the financial institution.

The paper has an issuer rating of B- from Fitch Rating agency and S&P, while Citi, Mashreq, Renaissance Capital and Standard Chartered Bank acted as joint lead managers and book runners.

Business Post reports that the note carries a coupon rate of 7.125 per cent, significantly below its Initial Price Thoughts of 7.75 per cent.

The successful launch was three times oversubscribed and is the lowest coupon/yield by a Nigerian financial institution for a benchmark bond transaction since 2013.

“The strong demand for our bond shows the international appetite for the Ecobank franchise in Nigeria, its unique positioning for facilitating pan-Africa trade and the attractive opportunity for the many investors seeking to back world-class Nigerian corporates,” the Managing Director of Ecobank Nigeria, Mr Patrick Akinwuntan, said.

It was gathered that proceeds will provide medium-term funding and help to enhance the capacity of the bank to support international trade and service across Africa.

Ecobank Nigeria, a subsidiary of Ecobank Transnational Incorporated (ETI), the parent company of the Ecobank Group, provides the full suite of banking products, services and solutions through multiple channels to retail, commercial, corporate and public sector customers.

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Banking

Keystone Bank Boosts Lagos Environmental Sanitation

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By Modupe Gbadeyanka

The Lagos State government’s environmental sanitation efforts recently received a huge boost when the new intakes of Keystone Bank Limited donated some kits to the Lagos State Waste Management Authority (LAWMA).

The new employees, who recently graduated from the bank’s training school, The Keystone Bank Learning Academy Lagos, gave the agency 60 units of street sweepers’ uniforms.

This is aimed to boost the morale of the personnel, who work hard to keep the city very clean and it was part of the bank’s Corporate Social Responsibility (CSR) drive.

“Keystone Bank is committed to sustainability and therefore has made it a point of duty for our trainees (newly hired fresh graduates) to buy into this concept from the elementary stage of their banking career.

“Each set of banking school trainees are made to carry out a specific CSR project, which they must fund to enable them to learn the act of giving back to the society,” the Head of Learning Academy at Keystone Bank, Mr Bimbo Alabi, was quoted as saying in a statement issued by the financial institution.

He added that Keystone Bank was keenly aware that the burden of keeping the environment clean cannot be left to the state government alone, hence the intervention by the bank.

“At Keystone Bank, we are always willing to partner with organisations that are committed to keeping the environment clean, especially in the communities where we operate.

“We cannot live a healthy life, conduct business, and create wealth amidst a sick environment,” Mr Alabi noted.

While receiving the uniforms from the Keystone Bank trainees, the Managing Director of LAWMA, Mr Ibrahim Odumboni, commended the lender for being alive to its CSR in partnering with the state government to keep the environment clean.

Mr Odumboni further called on other corporate bodies to emulate the gesture of Keystone Bank for the benefit of the larger society.

The Keystone Bank Learning Academy is a full-fledged certified and accredited learning and development centre, responsible for the continuous building of skills and the expansion of the knowledge base of new and existing workers of the bank.

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SEC DG Pushes for Sustainability, Safety, Soundness of Banking Sector

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banking sector trade finance

By Modupe Gbadeyanka

The need to ensure the sustainability, safety and soundness of the banking and finance industry has been emphasised by the Director-General of the Securities and Exchange Commission (SEC), Mr Lamido Yuguda.

To achieve this, the capital market expert has advised senior bankers in the nation’s banking sector to mentor the younger generation.

According to him, their commitment to mentoring the younger generation would go a long way in actualising the objectives of the Chartered Institute of Bankers of Nigeria (CIBN)’s mentoring scheme.

Mr Yuguda, who was a guest at the CIBN mentoring scheme tagged Mentoring: Unlocking Career Potentials and Possibilities in Lagos over the weekend, noted that, “Let me use this opportunity to encourage senior bankers to collaborate with CIBN in actualising the objectives of the mentoring scheme. Your commitment to mentoring the younger generation will go a long way in ensuring the sustainability safety and soundness of the banking industry.

“To the young bankers, I enjoin you to make the best use of this rare opportunity! I am confident that with the cooperation of all stakeholders, the CIBN mentoring scheme will be a point of reference for others,” he further said.

The SEC boss stated that to be a successful professional, one must be ambitious, willing to go the extra mile, try to be a value enhancer and must be outstanding.

He said that such a person must be teachable and willing to learn from other persons who are deemed successful in the same career path.

According to him, it is critical for young bankers to be mentored by seasoned senior colleagues as they progress in their careers because the banking profession is predicated on trust and professionalism.

Mr Yuguda said these values could be taught but are actually reinforced when demonstrated by senior bankers and emulated by their younger colleagues.

“Due to the peculiarities of the banking industry, it is easy for young bankers to get distracted with the prestige and sometimes material benefits that come with the profession.

“However, mentorship relationships help to keep such young professionals grounded and focused on building character, advancing their knowledge, growing their professional network and cultivating the right values.

“This is important because what makes success sustainable for a professional is a combination of skill, experience and the right values,” the SEC director-general said.

Earlier, the CIBN President, Mr Bayo Olugbemi, said that the institute had identified mentoring as a potent tool for bridging the gap between learning and doing.

“Esteemed audience, the changing times requires that we do things differently; the changing times require that we do things differently.

“At the CIBN, we believe so much that to maintain safety, soundness and stability of the banking industry, the human capital has a pivotal role to play in this wise.

“We have identified mentoring as a potent tool for bridging the gap between learning and doing.

“In order to uphold ethics and professionalism which is the hallmark of our banking industry and our great institute, accomplished and experienced bankers need to mentor the young and upcoming ones in order to sustain the ideals of our industry,” he said.

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Banking

Ecobank, Small World Sign Remittances Deal

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Ecobank Nigeria

By Ahmed Rahma

The desire to expand its remittances reach within Africa, Europe and other parts of the world has made a leading international money transfer provider, Small World Financial Services (Small World). to sign a deal with Ecobank Group 

Small World believes that its partnership with the leading lender in Africa will accelerate the growth of its global customer base as well as its 250,000 pick-up locations.

However, both parties will benefit from the partnership and will further boost financial inclusion in Africa.

It was gathered that Small World customers can now have access to the unparalleled Ecobank Africa-wide network in three ways which include direct transfer to bank accounts; mobile wallet; and cash pick up at any Ecobank location.

Ecobank will make available the Ecobank Xpress Account for the recipients of remittances sent by Small World.

“We are delighted to be forging a partnership with Ecobank.

“It is a leading bank in Africa with over 50,000locations in the region which means our global customers get access to even more ways to send money home to African countries.

“Importantly, Ecobank shares our commitment in delivering great customer service alongside providing fast, affordable and reliable transfers,” the founder of Small World, Nick Day, said.

Also commenting, the Ecobank Group Consumer Banking Head, Nana Araba Abban, stated that, “We’re proud to offer seamless payments across our vast borderless network in Africa.

“At Ecobank, we value partnerships, such as this, that enable Africans in the diaspora to remit money affordably and conveniently.

“This provides a win-win partnership as Ecobank can offer banking services to Africans wherever they are on the globe.

”Ecobank shares Small World’s commitment of making financial services seamless, convenient, and interoperable across Africa.”

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WorldRemit Lauds CBN’s USD Bank Account Opening Policy

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worldremit Funds Transfer

By Ahmed Rahma

A leading cross-border digital payments service, WorldRemit, has strictly adhered to the directive of the Central Bank of Nigeria (CBN) that all banks should facilitate money transfers by automatically opening US dollar accounts.

The apex bank also stated that a $2,000 withdrawal limit will apply to these accounts, explaining that it was to ensure that transactions do not fail due to a recipient not having a US dollar bank account.

According to the central bank, this development will also promote transparency by guaranteeing that all recipients receive an exchange rate that reflects the market rate.

Reacting to this policy, the Country Manager of Nigeria and Ghana at WorldRemit, Mr Gbenga Okejimi, said they were very pleased by the CBN’s decision to mandate Nigerian banks to help citizens who do not have a USD account by automatically providing this facility on their behalf.

“This development will make all the difference to those who receive support from family and friends abroad.

“For our part, we are excited by the fact that we can continue to enable the transfer of remittances to more people across Nigeria whilst also supporting the Nigerian government in its efforts to strengthen the economy,” Okejimi said.

“When our founder came up with the idea to create WorldRemit, it was with the ultimate goal of ensuring that the diaspora community could send money back home easily and through a safe platform.

“I am proud to say that we are constantly evolving, innovating and adapting to ensure that our customers’ needs are met efficiently,” he said.

WorldRemit recently announced the expansion of its US Dollar payout option with nine of its existing bank partners. This development makes it an International Money Transfer Organizations (IMTO) with one of the broadest and largest USD payout networks in Nigeria.

Customers of FCMB, First Bank, Access Bank, Fidelity Bank, GT Bank and UBA can now also access USD payout through the bank transfer and cash pickup options.

Those receiving transfers into Union Bank, Polaris Bank and Zenith Bank accounts can access USD payout only through the cash pickup option.

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Comviva’s Banking Suite Gets Omdia’s Recognition

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Comviva mobiquity Banking Suite

By Modupe Gbadeyanka

Another feather was added to the already-beautifully decorated cap of Comviva as its banking suite designed by mobiquity was given a mention in research from Omdia.

Omdia, formerly known as Ovum, is one of the world’s leading research and consultancy companies and in its report, it emphasised the role being played by Comviva’s mobiquity banking suite in the global digital banking ecosystem.

In the study titled Omdia Universe: Selecting a Digital Banking Platform, 2020–21 Comviva was ranked high on “customer experience” and its mobiquity® Banking Suite judged to be a “very innovative solution” based on recommendations from clients.

The report highlighted that Comviva has an agile platform and a team that can react quickly to industry trends and has the capability to innovate at a faster pace without being burdened with cumbersome legacy product solutions.

Comviva’s particular strength lies in supporting a variety of payment rails including digital wallets, P2P payments, QR codes, and A2A payments, and a modular architecture which has been built keeping instant payments in mind.

Speaking on the recognition, Srinivas Nidugondi, EVP and COO, Digital Financial Solutions at Comviva said, “We are thrilled to be listed by one of the world’s leading research and consultancy company Omdia in their report Omdia Universe: Selecting a Digital Banking Platform, 2020–21.

“This mention is a testimony to the fact that we are delivering world-class digital banking solution to our clients.

“We are proud that our mobiquity® Banking Suite is helping multiple banks in Asia Pacific, Middle East, Africa and Latin America to deliver digital-first banking experience to consumers creating value for them.”

The Comviva’s mobiquity® Banking Suite provides a comprehensive solution to banks and financial institutions to build, manage, optimize and deliver the multi-channel banking experience, as well as continuously iterate and engage the consumers, through instant configuration capability, personalization and experimentation engine.

It also delivers seamless, swift and secure digital payments to the customers, by facilitating prepaid wallet and leveraging technologies such as HCE, tokenization and QR Code.

The report gives a detailed and holistic view of the leading vendors, to help the CIO, heads of digital, and digital channel executives select the digital banking platforms that fulfil their specific digital transformation ambitions.

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