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Debt Consolidation Rates

How are debt consolidation rates obtained?  Why will one company offer you a higher rate than another?  All of these questions are imperative if you find yourself in a dire debt situation.  To answer the first question, the debt consolidation rates are based on the FED APR.  The Federal Reserve Bank has a prime rate that is offered to banks and lenders.  This rate is then going to get a bump up by the company.  The company has a certain percentage they can add on to the prime rate.  The percentage is based on the risk you pose to the lending company.  Higher risk individuals will see higher debt consolidation rates. 

The second question has been answered slightly, but there is one more thing to add.  Some companies offer a higher rate to include their payment.  Any debt consolidation company is in the business to make money.  It may sound a little harsh, but it is the truth.  The company will have fees that account for their income off your loan.  Sometimes these fees may be part of the debt consolidation rates and other times they may be laid out in direct fees. 

Any debt consolidation rates you are quoted can change as you move through the loan process.  The prime rate may change or the company may have undervalued the rate to gain your attention.  The good news is that any loan is protected by the Truth in Lending Act.  A debt consolidation company must be within a certain percentage of the quote rate or they violate the law.  Make sure you know the TILA (truth in lending act) and what percentage they need to be within before signing on the dotted line.  You can always back out of a loan even if you are there to sign the papers. 

No matter the debt consolidation rates you have to choose the situation that best works for you.  Do not let any company or person take the control you have in managing your debts.  You know what is best and how to work the situation to your benefit.

 

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