As an entrepreneur fired by the vision of a brilliant product or service, it is all too easy to neglect financial management and land up in a debt trap that swallows up the business. If you find managing multiple debts difficult, it may be worthwhile to take a look at debt consolidation loans. Here’s how you can choose the best one:

Look Around For the Best Deals

The loans market is extremely competitive and dynamic so you should not assume that you will get the best deal from any lender with whom you’ve had earlier dealings. Make it a point to scout around in the market for the best deals; you will be surprised to see how the terms and conditions, not to speak of the interest rates, vary. The rates vary from one lender to another due to the different risk-taking appetites, the requirement to build their books, and the assessment of the direction in which the financial markets are headed. Instead of personally visiting debt consolidation companies, you can check out their websites and request the quotes online. There are even sites on which you can compare deals from various companies at the same time.

Look at the Impact of Various Costs Associated With the Loan

The interest rate is not necessarily the only cost component of a debt consolidation loan. You could be charged fees under a number of heads such as origination fees, documentation fees, closing fees, etc. Even though the lender may agree to include all these fees into the principal amount of the loan, it has the effect of inflating your total borrowing and consequently your repayment. Make sure that you ask for a detailed statement showing each and every cost head before you agree to sign the contract. Most of the reputed companies will quote you the APR, which includes all the costs and is a true indicator of the cost of the loan. Be sure not to deal with companies that ask for fees upfront even before processing the loan application.

The Rate of Interest

How the rate of interest is calculated can make a significant difference to the cost of the loan. There will be some companies who will quote a flat rate, while others will quote a rate effective on a reducing balance. If you are not sure how to get to the bottom of the interest rate, ask the companies to quote you the APR in writing. The rate of interest that you will be offered will be affected by your credit score and the general condition of the financial markets. Also, if you are opting for a really long repayment period, you could be charged a higher rate. Offering collateral is sure to lower the rate of interest but you could lose the asset in case of default.

Conclusion

The secret to choosing the best debt consolidation loan is to borrow the least amount, opt for the least expensive lender, and repay in the shortest possible time to keep the interest outgo to the minimum.