What is meant by the term "consolidation loan"?

A consolidation loan refers to a financial product designed to streamline multiple debts into a single loan, often with the goal of reducing the overall interest rate. This is particularly beneficial for individuals trying to manage several high-interest debts, such as credit cards, personal loans, or medical bills. By consolidating these debts, borrowers can simplify their monthly payments, lower their overall interest costs, and sometimes even extend the repayment term to make the payment more manageable. This approach can help improve financial stability and reduce the risk of missed payments.

The other options refer to different types of loans that do not capture the essence of what a consolidation loan is intended to do. Short-term emergency loans focus primarily on immediate financial needs rather than debt management. Loans designed specifically for funding new businesses or home renovations target very specific financial purposes rather than the broader application of consolidating debts. Thus, understanding consolidation loans as a means to simplify and reduce debt highlights their unique role in personal finance.