Debt Consolidation Loans
Debt consolidation loans are loans which are made specifically to consolidate all your unsecured debt into one easy-to-manage monthly payment. The idea is that you take one loan, and use this to repay all your existing debts, leaving you with just one monthly repayment.
Example
For example, if you owe £2,000 for a car, £1500 for a credit card and £500 for a storecard, you could borrow £4,000 to consolidate these debts, paying them all off and replacing them with one loan for £4,000 - simple!
Would a debt consolidation loan be right for me?
You may be interested in a debt consolidation loan if any of the following applies to you:
- You'd like to consolidate all your debts into one affordable payment each month
- You're struggling to meet all your existing monthly debt commitments
- You are currently paying variable interest rates and would prefer one manageable rate
- You would like to reduce your monthly outgoings
- You're interested in an easier way to repay your existing debts
Why consolidate?
Debt consolidation is growing - in 2002, more than £40 billion of lending was used for debt consolidation compared with an estimated £21 billion in 1999. Potential benefits include:
- Lower interest rates - any loan which reduces interest can reduce your debt considerably. A debt consolidation loan may well be cheaper than one or more of your existing interest rates.
- Lower monthly payments - you may well find that a debt consolidation loan is cheaper than the combined payments you are currently making.
- Having to deal with only one payment each month - administration and bill paying can be streamlined by making just one monthly payment. This is almost always possible by direct debit, so no more forgetting to post a payment!
- Improving your credit rating - because you will be paying your debt off on time each month, if you have poor credit, your credit history should start to show an improvement quite quickly. After a certain time period, old arrears on your debts will disappear, making it easier for you to obtain credit in the future.
Types of loan
There are 2 main varieties of loan - secured or unsecured. Secured debt consolidation loans secure the borrowing against some form of security - usually your home. This means it is less risky for the lender and the amount borrowed may be greater or the interest rate slightly lower. Unsecured debt consolidation loans such as personal loans may offer lower total sums available for borrowing, but are not secured against your property.
Debt consolidation loans are dependent on your credit rating, but are still available if you have bad credit, and can of course be used to repay and consolidate credit cards as well as loans. Explore Finance offers competitive loans and you can apply online here.
