A Brief Guide to Consolidation Loans.

A loan that consolidates all of your existing debts into one payment is known as a ‘consolidation loan’.

This may be a good option for you if you have several outstanding debts as it brings together all of them into one easier to manage monthly repayment.

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Loans up to £25,000

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Understanding Consolidation Loans

The monthly payment is often less than your current numerous existing monthly repayments to each different lender.

If you are looking to borrow a large amount for consolidation, it may be that the lender will want to secure the loan, usually against some collateral like a property; therefore it is highly likely that you must be a homeowner to be accepted for such a loan.

Your home may be at risk if you do not keep up the repayments on a mortgage or any other debt secured against it. Think very carefully before securing further debts against your home. All rates are variable dependent on individual circumstances, loan amount and loan type. Overall, sometimes repaying your debt over a longer time period may increase the total amount payable.

What does it mean to consolidate debt?

There may come a time when an individual has accrued a quantity of debt through various sources, such as credit cards, store cards, unsecured loans or even payday loans. They may be paying each lender at different periods of the month, differing amounts and this can sometimes be difficult to manage.

Debt consolidation is attained by an individual taking out one loan to pay off all of their existing debts. This will leave one payment to one lender which will be made on an agreed date every month, usually around that person’s date of pay.

Prior to arranging a consolidation loan, there are a few things that you might want to consider:

  • 1. Have a good look at your current debts and their repayment schedules, how much interest are you paying back? Compare your current repayments against those of the potential consolidation loan. Does the loan work out cheaper or would it better to continue to repay at the existing levels?
  • 2. If you are struggling to juggle many repayments at once due to the amounts, check to see that debt consolidation loan repayment is going to be less than your existing outgoings. If they are, then this may provide you with the stability that you are looking for by lowering the repayments into one. The loan may be taken out over a longer period; the interest charged may work out higher. On the other hand, your existing repayments may be high in interest due to large APR’s on credit and store cards and the loan interest works out less, therefor saving you interest over time.
  • 3. It always a good idea to revaluate your previous spending practices once the consolidation loan has been arranged and existing debts repaid. Try to ensure that you maintain your repayments and you don’t fall back into your old ways that got you into debt in the first place.

Debt consolidation loans can be a perfect way of reducing monthly outgoings, help to manage finances better and reduce the worry of organising several debt repayments at varying times of the month. Just be certain that you can stick to your obligations, always do your calculations prior to making the commitment and be positive it is the right choice for you.

Advantages

  • A single monthly repayment to one lender is easier to manage than several monthly repayments to different lenders. It will be easier to keep track of your finances and outgoings.
  • One monthly payment on a consolidation loan may be cheaper that your current existing monthly repayments. This is because you are only paying interest and fees on the one consolidation loan and not several different fees, charges and interest.
  • Overall, you can reduce the amount you have to repay by consolidating all existing debts into a one, ideally lower interest consolidation loan. If you existing debts have high interest rates, this can save you money in the long run.

Disadvantages

  • You may incur additional fees to arrange your loan. These can often be added onto the overall cost of the loan, and differs from lender to lender.
  • Your debts may run over a longer time period.
  • Depending on how many existing debts you have, it may not be possible to consolidate them all.
  • Any loan secured against your home may be repossessed if you fail to keep up the repayments.

Loans up to £25,000*

Whatever your circumstances

* Unsecured loans available up to a maximum £25,000. Lenders will offer loans of up to £100,000 subject to affordability secured against property.

  • No 'Up-Front' fees
  • Bad Credit, CCJ, Arrears
  • Loans for any purpose
  • No complicated forms

Typical 16.9% APRC (secured)

Typical Example:
£15,000 over 5 years, typical 16.9% APR variable. Monthly Payment £371.98. Interest £7,318.95. Total Repayable £22,318.95.

49.9% APR representative (unsecured)

Representative Example:
Borrowing £4,500 over 36 months. Repaying £219.55 per month. Total repayable £7,903.80. Annual interest rate is 49.9% (variable).

WARNING - LATE REPAYMENTS CAN CAUSE YOU SERIOUS MONEY PROBLEMS. FOR HELP GO TO WWW.MONEYADVICESERVICE.ORG.UK

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*Unsecured loans are available to a maximum of £25,000. Loans of up to £100,000 may
be offered by the lenders subject to affordability and secured against your property.
Typical Example for illustration purposes only: £25,000 over 10 years with 7.8% APR, Total to repay: £35,664, Monthly Repayment: £297.20.
Overall cost for comparison is 5.5% APR typical. Overall cost for comparison for unsecured loans is 22.1% APR typical.
Unsecured Loan Typical Example for illustration purposes only: Borrowing £4,500 over 36 months. Repaying £219.55 per month.
Total repayable £7,903.80. Annual interest rate is 49.9% (variable).

This article is intended to provide information only, and does not constitute financial advice or assistance, without limitation, warranties as to satisfactory quality, fitness for purpose, accuracy or skill. The information contained in this article is generic and non-specific to your own individual circumstances or anyone else.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

WARNING - LATE REPAYMENTS CAN CAUSE YOU SERIOUS MONEY PROBLEMS. FOR HELP GO TO:

The Money Advice Service

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