|
 |
|
 |
|
 Money
Page > Loans
> Debt Consolidation Loan - UK Guide
 In a
nutshell
A loan that pays off all of your existing
debts so you only have one loan to repay.
Best
Loan for
People that need help managing their
existing debts.
Loan
Amounts
You won't be able to get an 'average' loan
amount for debt consolidation loans. Firstly, your lender will
work out how much you can borrow based on your own individual
salary and expenditure. Secondly, each lender will have their
own minimum and maximum borrowing limits and may base how much
they will lend you on the type of loan you choose (for
example, whether you take out a secured or an unsecured
option). This is all based on helping you make sure that you
can afford your repayments.
Loan
Period
You will probably be offered anything
between 1-25 years for a debt consolidation loan. Again, this
will depend on the individual lender/loan.
Loan
Advantages
If you are currently trying to pay off
various credit cards and other debts then you'll be paying
some of the highest interest rates in the sector. A debt
consolidation loan can be taken up at much more manageable
rates so you'll pay less back each month and over the course
of your loan. You'll also put an end to the interest that can
be added with cards - for example, if you can only afford the
minimum payment every month on a credit card then interest
will just keep being added to your original debt. This isn't
an issue with a debt consolidation loan. Your finances as a
whole will start to look much healthier if you only have one
payment to make each month and it'll be easier for you to get
a budget to get back on a firm financial footing.
What to
look out for
Your monthly repayments may be lower
with a debt consolidation loan, but you may end up paying back
more in the long run - especially if you take out a longer
term product. You may also find yourself having to use your
home as a guarantee for a secured loan - if you default on
payments then you are basically putting it at risk. A payment
protection scheme could help with this. The rates you are
given for a debt consolidation loan may be lower than those
you are currently paying but how low they are may vary
according to your own circumstances. People with financial
issues that come up on credit checks, for example, may find
themselves paying extra. And, you may well have to pay a fee
to get a debt consolidation product in the first
place.
One thing many people forget is that they may
have financial 'ties' to their existing lenders. So, when it
comes to using your debt consolidation to repay these debts,
they find that they are charged additional early repayment
fees. You'll need to check if this is the case with your debts
as it may mean you need to borrow more money. Many people also
fall foul of debt consolidation loans because they carry on
spending once their debts are repaid. So, they'll be
comfortably managing their debt consolidation repayments, but
then they'll take out a couple of new credit cards, a store
card and maybe even a new loan. Their original intentions may
have been good - but that didn't mean that they actually
changed their spending habits. So, it pays to be sensible
here.
Alternatives
If you
qualify for one, a mainstream personal loan may do the same
job for you.
|
|
 |
|
 |
|
|