Consolidation loans are a type of loan offered by financial institutions that impose their own obligations on the debtors. Consolidation loans are given to lenders for the purposes of paying off their various creditors in order to consolidate their debt to one creditor namely the institution that gave the loan. There are a variety of criteria that one needs to fulfil prior to receiving a consolidation loan, some of which is common where others are imposed by specific institutions.
Consolidation loans may or may not be a good idea and one needs to look at a variety of factors prior to agreeing to the terms of a consolidation loan. One of the benefits that companies offering consolidation loans usually offer is lower interest rates than that of the credit card company or other creditor. This may serve the client well depending on how the company offering the consolidation loan has drawn up the agreement.
Consolidation loans offered at smaller interest rates may also not make sense as they loan is paid off over a longer period and thus the client eventually pays more than they would if they continued paying their creditors with higher interest rates but in a shorter space of time. Consolidation loans may also require the debtor to commit to not take out any debt until they have finished paying off the loan for example.