Debt Consolidations Loans

Guide

Overview

If you’re struggling to juggle several debts you may consider a debt consolidation loan.

A debt consolidation loan could allow you to reduce several payments into one fixed monthly payment.

Does debt consolidation affect your credit score?

It’s possible a debt consolidation loan will lower your credit score in the short term, but it will improve your credit long-term if it’s used to repay debt.

What is a Debt Consolidation Loan

Put simple a debt consolidation loan is a way of consolidating debts.

It means that instead of paying several monthly payments you’ll have a single monthly payment that will cover all the debts owed.

There are two types of debt consolidation loan – secured debt consolidation loans and unsecured debt consolidation loans. It’s important to be aware of the differences between the two before you decide which one is right for you.

A secured debt consolidation loan is taken out against an asset of value, such as a home, while an unsecured debt consolidation loan isn’t. If you fail to stay on top of monthly repayment of a secured loan you risk losing your home so it’s important to take this into consideration.

How much does a debt consolidation loan cost?

Debt consolidation loans are a way of managing existing debts but do come with a cost attached.

The loan amount will need to cover the overall cost of your debt and then there will be additional costs to consider. These include:

  • Loan amount will depend on the value of debts you’re consolidating.
  • The repayment term will also impact the cost (the average repayment term if four years)
  • The APR interest rate will also add to the cost as well as any other charges such as annual percentage rate or arrangement fees.
  • You’ll also need to be prepared to pay for early settlement.

Can I get a debt consolidation loan with a poor credit history?

Debt consolidation loans are available to people who have a bad credit score.

In fact, the people who often benefit from debt consolidation loans the most are the people who owe money to a number of different creditors.

If you owe money to debts such as credit cards, overdrafts, a personal loan or to the bank you may consider a consolidation loan to ease the burden of multiple monthly payments.

You should be aware, however, that while you can access debt consolidation loans with a poor credit score the likelihood is you’ll be faced with a higher interest rate on the repayments to be made.

It’s important to make sure that you’re aware of any costs attached to a debt consolidation loans to avoid any further financial stress. Remember, there are no government schemes that offer you debt consolidation loans and there will likely be no loans that are interest free.

If you’re unsure about a lender, always check the financial services register number to ensure it is regulated by the Financial Conduct Authority (FCA).

It’s important to make sure that you’re aware of any costs attached to a debt consolidation loans to avoid any further financial stress.

What's the process of applying for a debt consolidation loan?

Applying for a debt consolidation loan is simple. Here we offer a guide to help you find the right loan for you.

Shop around

Don’t get caught out with the first loan you come across.

Be sure to sop around to find the consolidation loan with the best representative APR and low interest rate. You should also check for the best loan repayment plans.

It’s important to check your budget to ensure you’ll be able to cover the cost of the loan amount, although this shouldn’t too much of a hardship as you consolidate several payments into one monthly repayment.

Make use of comparison sites to help find the best consolidation loan deals.

Your application

Once you’ve found the debt consolidation loan you’re interested in, you must submit your application.

You can apply online or in person if applying through a bank. You’ll be asked for financial information such as details of your income and expenditure and maybe asked to share your bank statements to prove your affordability.

If you apply online you may get your result straight away or you may need to wait a few days to discover if your application has been approved.

Repayment plan

If your consolidation loan is approved you’ll consolidate debt and begin repaying through one affordable monthly payment.

What you pay with the new loan depends on your personal circumstances. Whether you’re worried about existing debts such as credit card debt or a personal loan, you can repay with a fixed monthly payments.

It’s best to tackle the debts that worry you the most first, this can help stop action creditors may be trying to take against you and can stop interest rates rising on the original debts.

A debt consolidation loan lets you repay existing debts in much more streamlined manner – paying just one loan instead of several.

How we helped Paige

It was literally the best decision of my life, and it has actually changed my life, cheesy as that sounds, it has changed my life.

Paige , IVA Customer

Can a debt consolidation loan affect my credit score?

Debt consolidation loans can affect your credit score in both positive and negative ways.

Positive

  • By simplifying your monthly repayments you may find that you’re less likely to miss payments on what you owe. Over time this positive behaviour can help improve your credit score.
  • A debt consolidation loan might also help you pay a lower interest rate. If you’re paying less interest you may be able to pay more towards what you actually owe and you can repay the debt sooner.

Negative

  • Just like any loan or credit application, applying for a debt consolidation loan will record as a hard credit search on your credit report. This can lower your score for a while but as long as this isn’t a frequent thing it should recover.
  • If you use a debt management plan – often advertised as being the same as a debt consolidation loan – your credit score could be impacted.

Advantages & disadvantages of a debt consolidation loan

Advantages

  • Debt consolidation loans allow you to consolidate multiple debts into one monthly repayment.
  • Making one monthly repayment can allow you to better manage your budget.
  • It’s an informal debt solution so isn’t recorded on a public insolvency register.
  • Can give more time to repay debts.
  • The amount you owe towards your debt each month may be reduced.
  • Debt consolidation loans work to improve your credit score if you manage your monthly repayments.
  • All existing debts will be paid at the end of the consolidation loan term.

Disadvantages

  • Your home pay be at risk if you fail to stay on top of a secured consolidation loan.
  • Failure to repay unsecured debt consolidation loan could also result in bankruptcy.
  • Even if you’re facing financial problems you’ll be expected to repay the consolidation loan in full.
  • Not all debts can be included in a debt consolidation loans. While consolidating debt such as credit card or personal loans is allows, some debts such as council tax arrears can’t be included.

Where can I find debt consolidation loan advice?

If you’re concerned that your financial circumstances are spiralling out of control it’s important to seek support as soon as possible.

While a debt consolidation loan might seem like the best way to deal with existing debts it’s important to be aware of all the debt solutions available to you. Contact Your Debt Expert today for debt advice on 0800 082 8086.

Where can I get more advice on Debt Consolidations Loans and other debt solutions?

To discuss your options and get the support you need to deal with your debt today, contact us now on 0800 082 8086 or click the button below to get started.