DEBT CONSOLIDATION LOAN
What is a Debt Consolidation Loan?
A debt consolidation loan UK can simply be referred to as an unsecured personal loan which is however not secured against any of your assets or can also mean a secured loan which is often referred to as a second charge mortgage and is certainly secured against your home. It can assist you to reorganize your finances, spending, and also streamline all or some of your current debts into one monthly payment. Having only a single payment to manage rather than numerous debts, could make it easier to keep track of your payments, and also assist to make budgeting easier.
How Debt Consolidation Loans UK Work
An unsecured debt consolidation loan works just the same way an unsecured personal loan works. However, before you take the next step to apply for a debt consolidation loan, you must make sure you meet the standard eligibility criteria:
- Be aged between 21 to 75
- Have been a UK resident for at least three years
- Should have an annual income of at least £15,000
- Must also have a personal bank account in the UK
Does Debt Consolidation Hurt Your Credit?
Consolidating your debt can lessen your monthly repayments. However, it can also harm your credit score temporarily. The two most common debt consolidation approaches consist of getting a balance transfer card, or a debt consolidation loan. Both types, however, need a hard inquiry on your credit, which can eventually lower your credit score by a few points. But if you make a U-turn and change the bad habit by paying your debt on time, every time you have a loan, the eventual effect should be positive.
Pros and Cons of Debt Consolidation Loan UK
Debt consolidation merges several debts into one, but with a lower interest rate, leading to a faster payoff. If you have many payments to juggle and your interest rate is currently high. This will certainly assist you in paying off debt on time.
- In general, this requires a lower credit score for approval, rather than a balance transfer card.
- It can help enhance your credit score. If you only had credit cards before because you pay back the loan in instalments.
- This combines several payments into one, thereby, simplifying your finances.
- This can as well improve your credit by lowering the amount of credit you use at a time. Which is known as credit utilization if unsecured credit card bills are converted to an instalment loan?
- This can make you incur even more debt if you use the newly available space on credit cards.
- Late payments can damage your credit if you end up overextended and unable to pay.
- You will have to be paying high fees to borrow money (make sure you understand the APR).
- This will also make you have a prepayment penalty (however, some do not, so please ensure to check).
Debt Consolidation Loans Comparison
It only makes sense, and worth diving into debt consolidation if you can find a debt consolidation loan. The loans should give a much cheaper interest rate than you are already paying. Although there are no best loans, however, our comparison can perfectly assist you to compare debt consolidation loans. We find the best deal that is right for you.
What You Can Do if You are Struggling with Debt
If you have got several different debts to pay, and you are struggling to keep up with the repayments. You can combine them into one loan to reduce your monthly payments. That is, you borrow money, huge enough to clear your current debts and owe money to just a lender.
Two Different Types of Debt Consolidation Loan
Secured – in this case, the amount you borrowed is secured against an asset you have. Most of the time, this is usually your home. However, if you miss repayments, you could lose your home in the process.
Unsecured – in this case, the loan you borrowed is not secured against your home or other assets you have.
Secured debt consolidation loans that are usually secured against your home are often referred to as homeowner loans. You might be offered a secured loan if you owe a large amount. If your credit history is poor. It is highly recommended that you get free debt advice before you considering a secured debt consolidation loan. They may not be the right option for you. This could lead you to store up trouble or putting off the unavoidable.
When to Consider A Debt Consolidation Loan
Consolidating debts only proves to be beneficial if:
- Any savings you had are not wiped out by unnecessary fees.
- You can afford to keep up with the loan repayments until it is fully repaid.
- Always make use of that opportunity to limit your spending and get back on track.
- You eventually end up paying lesser interest than you were paying earlier. The total amount payable is also lesser.
FAQS about Debt Consolidation Loans
- Do I have to pay off all my debts with the consolidation loan?
No, you can decide to choose which debts to pay off first. However, if you keep any of the debts open. You have to prove that you can offer to pay them back along with any new loan.
- Will the money be paid immediately to my other lenders?
No, it is normally paid to your account, and then you proceed to pay off each of your debts individually.
- What happens if I am unable to make my repayments?
You will likely be charged a fee for not able to make repayments when due, and your credit record will also be damaged.
- Is the loan interest rate fixed?
Yes, it is fixed as it doesn’t change at all. It will remain the same as it was on the very first day you took out your loan.
What information do I need before I begin my application process?
The below will help you get through your application more accurately and faster if you have:
- All your residential addresses from the past three years (including the postcodes as well).
- The full name of your employer, the date you were employed there. The full salary you get paid (before tax).
- Your mobile number to help you register for internet and telephone banking.
- Your monthly expenses details, including your rent or mortgage. Any existing personal loan repayments you currently have your credit cards and/or your hire purchase agreements.
With the information above, then you are set to begin your debt consolidation loan process.
For free and impartial advice on money-related issues, please visit Money Advice Service.