Debt Consolidation Loans
Many people who are managing multiple debts such as credit cards, loans, store cards, overdrafts and catalogues often find that it is the number of outgoings that is difficult to stay on top of as well as the total amount of money being spent making monthly repayments. Therefore, debt consolidation loans can be doubly beneficial because they can help wrap all outgoings into one payment which is often a lower amount than was previously being made.
Debt consolidation can take a number of different forms with the most popular method being where a person applies for a new loan (known as a debt consolidation loan) that is of an amount large enough to pay off all existing debts, leaving the borrower with just one loan and one monthly payment to service. If the person’s main objective is to have a lower monthly payment than what they were paying previously, then they will need to understand that a debt consolidation loan will most probably mean paying the debt over a longer period. If the person’s main objective is to pay back less, they will probably need to apply for debt consolidation loans from providers willing to charge less interest – so a good credit score will be required to qualify.
The maximum unsecured debt consolidation loan that a lender can offer is £25,000 and this may prove a problem for a person who is looking to consolidate but has more than £25,000 worth of debt. In these circumstances, a person may wish to consider secured debt consolidation loans because secured loan lenders are prepared to offer higher amounts. These types of debt consolidation loans are normally secured against the person’s house and are reliant upon the person having enough equity in their house to qualify. Equity is calculated by deducting the outstanding mortgage left to pay from the property’s value - for example if a person’s house is worth £100,000 and there is £60,000 mortgage left to pay, the equity is £40,000.
There are a number of factors involved that can determine a person’s eligibility for a debt consolidation loan, the amount that can be raised and the interest rate to be applied. These determining factors will be a consideration of total household income, number of years worked, any defaults or CCJs, credit score, whether the applicant is on the electoral register, and a number of other factors bespoke to each lender’s criteria. Ultimately, creditors will always have to apply a risk assessment to every application in order to lend responsibly to borrowers who can afford the repayments on towards debt consolidation loans.
Debt Consolidation Loan Pros:
- A debt consolidation wraps up all your debts into one affordable monthly payment
- Avoids upsetting your credit rating like a ‘traditional’ debt solution
- You may qualify for a lower APR than you’re currently paying
- Simplifies your monthly payments from many creditors to just one
- Debt consolidation loans can help reduce your stress and worries of not being able to afford your debt repayments
- Can help avoid making late payments which in turn lead to penalty charges
- You could borrow enough to pay debts and have some left over to spend on yourself
Debt Consolidation Loan Cons:
- You could end up paying more back in the long run with some debt consolidation loans
- If you re-mortgage or take out a secured loan, you will be securing unsecured debts against your home
- You will free up space on your credit cards when you consolidate and you may be tempted to run up fresh debts on them
- Your situation may mean that a lender can only offer a debt consolidation loan with a higher APR than you were paying previously
- It could take longer to pay off your debts if you take out a new debt consolidation loan
- It can be frustrating if you constantly get rejected for consolidation loans after lengthy application processes
- Debt consolidation loans are harder to come by since the ‘credit crunch’ of 2007/08
If you would like to enquire as to how a debt consolidation loan could help you then please leave your details below. We can call you at a time that is convenient for you and there is absolutely no obligation whatsoever. Simply fill in the form below and one of our friendly advisers will be able to explain everything you need to know.