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Home » Consolidation Loans

All About Debt Consolidation Loans

One loan is almost too overwhelming, especially if the interest rate and fees are excessive. So what if you need to handle more than one lender? Having two or more of loan providers and taking care of different rates is not easy, let alone following various terms and conditions. Luckily, there are debt consolidation loans available in banks, through the use of your home equity, or by going online. You can start by submitting an application form and necessary documents. Lenders will then verify the all the details to be able to come up with a decision. Normally, the money is sent within two weeks or less, unless you’re applying in banks.

The goal is to acquire single low-interest rate consolidation loans to settle all your debts, including medical bills, credit cards, and personal loans.

Consolidation loans offer an effective way to handle all your accounts. It turns multiple debts into one cheaper loan option so you will not have difficulties repaying the loan again. But before you get consolidation loans, make sure that it is the right choice. Ask yourself: “Is your income enough to cover the monthly repayments?” “Is the interest rate lower than all the other current interest rates combined?”

When in doubt, you may ask a financial adviser to help you fully understand the loan and to know if it’s worth your time. Or, you can look for a loan broker instead Otherwise, you may conduct a research online to find out how you escape the vicious cycle of debts.

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Benefits Of Consolidation Loans

Debt consolidation loans are beneficial especially since it has a lower interest compared to all the rates of your debts combined. Otherwise, it’s useless. The aim for taking out consolidation loans is to make your repayments a lot easier. A good or excellent credit score usually helps in getting a more affordable loan alternative. Therefore, you need to improve your credit score – if you are a bad credit borrower – first to ensure a lower interest rate.

Consolidation loans are feasible options when you’re too exhausted with all the multiple credit accounts that you have to deal with every month. Rather than worrying about different due dates, debt amount, and loan providers, you will just think about a single company. It is also ideal if you want a more flexible repayment term.

Secured Vs Unsecured

Consolidation loans come in two forms – secured and unsecured. When you take out a loan and pledge a certain property, like a car or a house, to be used as a security against the loan, then it’s considered as a secured loan. The concept is that if you fall behind, the lender can repossess your property or foreclose on your home to satisfy the debt.

There are many options to consolidate accounts using secured loans. You can take out another mortgage, refinance your house, or apply for a home equity. You can use your automobile as collateral or even your life insurance. Secured consolidation loans, after all, carry lower interest rates which are more affordable than unsecured loans, thus helping you save cash on interest payments. The lower the interest rate, the lower the monthly repayment, thus making it a better choice if you need affordable loans. Some secured loans are even tax deductible.

The huge downside, however, is that you are putting the pledged property at risk. If you cannot settle the loan back, you could lose your hard-earned car, home, or whatever valuable item you have used to secure the advance. Your life insurance may not be available anymore if you cannot settle the loan back even if you need to use it.

On the other hand, unsecured loans are solely based on your signature. A loan contract is signed, stating your promise to settle the debt. It is not secured by any asset that can be repossessed or foreclosed. One popular example of unsecured loans is the credit cards. Although no property is at risk, the downside is that it carries a high-interest rate since the loan is riskier on the lender’s side.

Unsecured consolidation loans are quite common, however, they are less likely available to borrowers, especially to those who have a bad credit remark. Individuals with an excellent credit remark are the ones often accepted, while those who have records of arrears, CCJs, bankruptcy, and the like are often declined. In some ways, unsecured loans may still work on individuals with a bad credit rating as long as they can provide a stable source of income. The lender may require any proof such as payslips, certificate of employment, or other proof of income. Being regularly employed is crucial although there are lenders who accept self-employed or recipient of benefits or pensions.

The biggest advantage of unsecured consolidation loans is that no collateral is at risk. Also, despite the high-interest rate charged compared to secured loans, it may be cheaper on various credit card balances.

But then again, the interest rate for most unsecured consolidation loans is exorbitant. Plus, it may not be available if you have a damaged credit rating. Therefore, before you consider this loan, be sure that you can handle the new rates. After all, the goal for taking out consolidation loans is to lower the charges.

Qualifications For Consolidation Loans

Like other loans, need to possess basic criteria:

  • Age

The borrower must be 18 years old and above

  • Proof of Residency

The borrower must provide a proof that he is a UK resident or citizen

  • Proof of Income

The borrower must provide documents that will support his income, employment, benefits, etc.

  • Valid IDs

The borrower must provide sets of ID to verify his identification

  • Bank Account

The borrower must provide his working bank account.

Consolidation loans are a huge help if you have multiple debts but it will not be effective unless you are committed to the loan contract. Discipline is necessary to make repayments easier. Once approved, remember to use the loan amount solely to settle all the current debts and avoid using it on anything else.


Representative Example:
305.9% APR. £400 borrowed for 90 days.
Total amount repayable is £561.92 in 3 monthly instalments of £187.31.
Interest charged is £161.92, interest rate 161.9% (variable)
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