What is 'Reloading'

Reloading is the practice of taking out a new loan to pay off an existing loan to obtain a lower interest rate or to consolidate debt

Breaking down 'Reloading'

Reloading could be employed by a cardholder with a large outstanding credit card balance that is accruing interest at a high rate. Because of financial constraints, the cardholder makes only interest payments while the principal increases with continued card use. If the cardholder is a homeowner, they could take out a tax-deductible, lower rate home equity loan to pay off the credit card debt. This would solve credit card problem in the short term, but there is risk of beginning a spending and borrowing cycle that deepens overall indebtedness.

Consolidation loans can aid consumers with heavy debt on more than one credit card. A debt consolidation loan allows them to pay credit card off in full using the new loan. This reduces collection calls received and simplifies monthly payments from several to a single payment to a single payee. And, it can enable the borrower to improve their credit score by making on-time payments.

Debt Consolidation Loans Explained

Consolidation loans may be secured or unsecured. Secured loans are tied to an asset such as a house, car or other property that is used as collateral in the event that the borrower defaults on the loan. Unsecured loans are not tied to an asset and are based on credit history and are considered high risk for a lender. Secured loans are easier to obtain, available in larger amounts at lower interest rates and may be tax deductible. But they have longer repayment schedules so may cost more and they place the asset used as collateral at risk in the event of default. Unsecured loans carry no asset risk but are more difficult to obtain because the borrower is perceived by the lender as high risk. Loan amounts generally are smaller with higher interest rates and no tax benefit.

A simple consolidation loan example is a zero percent interest credit card balance transfer. A card company could allow the borrower to combine debt from several cards on one card with no transfer fee and no interest payment for a specified time, usually 12-18 months. Another option is a consolidation loan from a credit union or peer-to-peer online lender. Qualifying requirements usually are less stringent than for banks and the terms more favorable to the borrower. However, not every financial problem can be solved by debt consolidation. In some cases, debt settlement or bankruptcy may be better solutions.

  1. Unsecured Loan

    An unsecured loan is a loan that is issued and supported only ...
  2. Direct Consolidation Loan

    A direct consolidation loan is a type of direct loan that combines ...
  3. Personal Interest

    Personal interest is interest that individuals pay on personal ...
  4. Character Loan

    A character loan is an unsecured loan made on the basis of the ...
  5. Loan Stock

    Loan stock refers to common or preferred stock shares that are ...
  6. Closed-End Credit

    Closed-end credit is a loan or extension of credit in which the ...
Related Articles
  1. Personal Finance

    How to Pay Off Credit Card Debt This Year

    When you look at the numbers, debt seems to have become an American way of life.
  2. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  3. Personal Finance

    Time To Consolidate Your Student Loans?

    Use these strategies to decide whether consolidating your student loans makes sense for you – and what to do next if it does.
  4. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  5. Personal Finance

    Personal Loans: Consider These Alternative Lenders

    Looking for an alternative source of financing for a personal loan? Take a look at these companies.
  6. Personal Finance

    How to Get Your Student Loans Forgiven

    The prospect of debt forgiveness may seem like a dream come true. In reality, though, not that many people end up being eligible.
  7. Personal Finance

    Should You Lend Money to Family or Friends?

    Find out how loaning cash to help family or friends can put a strain on your relationship and your bank account. Learn how to make family loans safer.
  8. Personal Finance

    Expert Tips for Cutting Credit Card Debt

    Managing your debt could mean the difference between spending $45,000 or saving $184,000.
  9. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
Trading Center