Consolidation Loan
What is a Consolidation Loan?
A consolidation loan is designed to combine all of your existing debt into one affordable monthly payment. You still pay back all the money that you owe, but all the monies are combined into one manageable loan.
Why choose a Consolidation Loan?
Consolidation Loans combine all your existing debt into one monthly payment, and can help improve your financial situation. A consolidation loan can:
- Reducing monthly payments by lowering the interest rate or spreading the payment over a longer period*
- Provide a better rate of interest and possibly reduce the amount of interest you pay
- Provide flexible terms. With a consolidation loan, you could pay off your debts sooner if you shorten the term of the loan.
- Improve your credit rating if the loan is paid off in full and no further debt is accumulated.
Unsecured and Secured Consolidation Loans
Consolidation loans are available in two forms, unsecured loans or secured loans.
Unsecured Consolidation Loan
An unsecured loan usually has higher interest rates then a secured loan, as you are not securing the loan against any assets, such as your home.
When consolidating your debts, an unsecured loan will only prove cost effective if the interest rate is lower than the combined interest rate of the existing loans.
Tenants or homeowners can both apply for an unsecured loan.
Secured Consolidation Loans
A secured loan usually has lower interest rates, meaning the total amount of interest you pay over the term of the loan is less. This is because you are using your assets to secure the loan against, for example securing the loan against your property.
Secured loans are only available to homeowners, or anyone who can legally secure monies against a property they own.
Am I eligible for a consolidation loan?
Consolidation loans are subject to status. A lender will check your eligibility by considering:
- The amount you would like to borrow to cover your debts
- The term of the loan
- Your credit status
- Income and Expenditure
However, depending upon your circumstances, a consolidation loan may not pay off all your debts. If you have a poor credit history, you may not be able to borrow the full amount required.
A debt advisor will advise you on the best option to help you with your financial situation. Other options to consider may include Debt Management, IVA?s, or possibly Bankruptcy.
*By increasing the term of the loan you could end up paying more interest over the full term of the loan.
Creditor
Someone you owe money to.
Unsecured lending
Total loan & credit card debts excluding your mortgage and any hire purchase.
Country
The country you currently live in.
Insolvency Practitioners
Also known as an IP, a person who specialises in formal insolvency cases.
Valuations
The process of determing the current value of an asset.
Equity
The difference between the market value of a property and the claims held against it.
Lender
Someone you owe money to.
Eviction Order
A court order by which a person may be evicted.
Arrears
An unpaid and overdue debt.
Disposable Income
The amount of income left to an individual after taxes have been paid, available for spending and saving.
Statement of Affairs
A financial report showing assets and liabilities at expected liquidation values and shareholders' equity.
Insolvent
Unable to meet debt obligations.
Secured Loan
Money borrowed using goods or property as a guarantee.