Unsecured loans are one method of easing debt pressure by transferring multiple smaller unsecured debts into one monthly payments. It involves taking out one loan to pay off lots of debts, and from then on paying back the loan. It may end up that your repayments end up cheaper, too.
Interest rates and any other relevant charges will still apply to the new loan. It also means you aren’t wiping off any debt; everything has to be paid back. You might be granted more time to do so, though, which can reduce the amount of money you have to pay back from month to month.
Am I eligible for a debt consolidation loan?
There are certain requirements you have to meet in order to qualify for a debt consolidation loan. You must have a stable income which allows you to make regular repayments. You must also have multiple smaller outstanding debts, which can include things like:
- Unsecured Personal Bank Loan
- Credit Cards/Store Cards
- Council Tax Arrears
- Payday Loans
- HMRC Debts
The final requirement is a good enough credit rating that a lender will grant you the consolidation loan. If you are already facing out of control debt it is unlikely that this is the case, which makes a consolidation loan an uncommon option. However, there are plenty of other viable options which our team can discuss with you.
How do I apply for a consolidation loan?
Again, consolidation loans are not suitable for everyone and it is important you get in touch with us first so we can make sure it’s the most viable option for getting rid of your debt. In most cases, borrowing more money to pay other debts is a mistake. Speak to one of our experts before making a decision.
However, in cases where a consolidation loan is appropriate, we can suggest various places for you to apply for your consolidation loan. If are successful and receive your loan we can distribute your loan between your creditors until every debt has been settled.
At this stage all of your original debts will be settled. These creditors will no longer contact you, as your business is concluded. However, you will be expected to meet the repayments for your new loan. Afterwards, all going well, you will be entirely debt free!
What are the advantages of a consolidation loan?
- Condensing multiple debts into one singular debt can simplify the repayment process, reducing stress.
- Your creditors will have no reason to send you constant letters and make repeated phone calls.
- Depending on the circumstances, a consolidation loan may give you more time to pay back your debts.
- If all repayments are delivered on time then a consolidation loan should improve your credit rating significantly.
- You must have a decent credit rating to have your consolidation loan approved.
- In some cases, the total you pay back will be more than what was originally owed, due to interest and any other relevant charges.
- Your new lender has the option of taking legal action against you in the event that you miss scheduled repayments.
- Lenders may ask that your loan is secured against an asset, like your home. This can put the asset in danger if you do not meet your repayments.
What are the disadvantages of a consolidation loan?
Almost always, borrowing more money to pay off debts is a mistake. However, consolidation loans can be very effective in some cases for wiping out debt. Either way, seeking professional advice before doing anything is advisable. There are no charges for picking up the phone and giving us a call, so why not?
If it turns out that a consolidation loan is compatible with your financial situation then we can offer guidance and expertise. Our friendly advisers are here to lend a helping hand and make your journey out of debt as fluid as possible.
Call us on 0800 808 5124 for more information.