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When you consider a consolidation loan, it's important to make sure that you take advantage of the cheapest consolidation loan for your circumstances. Each loan is tailored to the needs of the individual borrower and his or her financial circumstances, so you must do your own research and not assume you will receive the same rate as you neighbor by going through the same lender.

Loan rating factors

Lenders have processes they utilize when they look at each application. In order to receive the cheapest loan, you must meet certain criteria and qualifications. That doesn't meant that if you don't meet the qualifications you won't be approved, but it does mean that you won't get the lender's best terms. Some of the items the lender will be reviewing that determine the rate you will receive include:

Credit history

Employment stability

Financial stability

Income

Other factors may also be used, especially the outstanding loan to income ratios of any debt that will not be included in the consolidation loan.

Expectations of individual lenders

Within the scope of the financial market, many different qualifications and criteria exist among lenders. There is no set rule that applies to all lenders other than those dictated by the government or banking industry such as that pertaining to discrimination or loaning money for illegal or terrorist activities. As such, what one lender may find to be a major issue in granting a loan will not necessarily hold the same weight with another lender. The importance of research cannot be stressed enough because without it, you cannot know if you have had the cheapest loan deal.

Working with a lender

When you have completed your research you should have enough information to make a decision on which lender to use. Keep in mind that taking a shorter repayment term will reduce the overall cost of your loan, so if you are able to do that, it is an economically sound decision. If there are credit issues that may affect the interest rate, you will need to discuss that with the lender before you commence with the loan application. Even though the lender is going to run a credit check, if you have a copy of your credit report, it will help you discuss the issues with the lender before you apply for the loan in order to determine what options you have.

Finalizing the loan

Once you are comfortable with the terms the lender offers, you can then provide him any addresses for loans that are going to be included in the consolidation. Remember, the funds are not going to be disbursed directly to you, but the lender will mail checks directly to the creditors who are going to be paid with the proceeds of the loan.

If your purpose in obtaining the cheapest consolidation loan was to clean up some old debts, be certain to proceed with caution with your new loan so that you will not make the same mistakes you made in the past. The lender has you a chance to prove yourself, so you must prove that he didn't make a mistake. For those who took out a consolidation loan in order to pay off debts with high interest and lower the payments, do not take this as an opportunity to start the process all over again.