Debt consolidation loans
If you currently debt multiple debt repayments you need to make, that you struggle to keep track of and have high rates of interest you may have thought about consolidating it into one repayment. If so debt consolidation loans might be a solution for you.
With debt consolidation loans, you use the loan to pay off the other existing debts you have, note that there may be early repayment charges. This allows you to put all of your debt into one place with just one loan to make repayments on.
If you are thinking of taking out a loan to consolidate debt understand that spreading your repayments over a longer term could mean you ultimately pay more than you would with your existing arrangements, even if the interest rate on the new loan is less than the rates you have at the moment.
Also known as unsecured loans are a type of loan that typically allows you to borrow up to £25,000 over a variable time period. Generally speaking the larger amount you wish to borrow the lower the rate of interest, however this does not mean you should take out a larger loan you cannot afford to service or repay.
Lenders will advertise their personal loans with a Representative APR however this is not the amount you are guaranteed to get from taking out a loan with them, your actual interest rate will be dependent on numerous factors such as how much you earn and your credit history, they will also take this into consideration when they evaluate how much they are actually willing to lend you.
If you want to borrow a larger amount of money and are a homeowner a homeowner loan might be better for you. As you have placed an asset (such as your home or other property) as security banks are willing to lend more, usually up to £250,000. The actual amount you can borrow is dependent on the value of your home and how much equity you have if you have a mortgage.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. If you are at all unsure of the suitability of a particular product for your circumstances you should seek independent financial advice.
If you are worried your credit score would not allow you to get a normal personal loan you may be able to get a guarantor loan. When applying for a guarantor loan instead of consulting your credit history to decide if they will offer you a loan or not you can have a friend or family member agree to be your ‘guarantor’. The loan will instead rely on their credit history.
What you need to understand about a guarantor loan is that the guarantor also accepts responsibility for it. If the borrower misses a repayment date it becomes the guarantor’s responsibility to pay it. Failing to do so can have serious complications for both parties, guarantor loans tend to have relatively high APRs compared to personal loans.
Before you take out a loan
When looking into debt consolidation loans you will find a range of different options. So it’s worth taking your time to try and find the best choice for you. You can use the calculator on this website to compare different loans from various lenders.
As taking out a loan is an important decision aside from comparing loans you should think if you have any other options before taking one out. If you have any savings it might be beneficial to use these instead, because you may find that the interest you pay on a loan will be higher than any interest you earn from your savings.