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How Do They Work? What Is A Debt Consolidation Loan?
If you have multiple sources of debt which are giving you cause for concern, then debt consolidation may be a viable option for you. If you’d like to consolidate your personal loans or credit card debts and simplify your monthly repayments by using debt consolidation, here’s everything you need to know before you consider applying.
What is a Debt Consolidation Loan?
A debt consolidation loan is a type of credit which allows you to take debt from multiple sources and merge it into one, easy to manage source.
These types of loans come as both unsecured and secured loans, depending on your reliability and creditworthiness.
How do they work?
Debt consolidation loans allow you to borrow a lump sum to repay off your existing debts such as overdrafts, credit card bills and even personal loans. Once your multiple outstanding loan amounts have been settled, you’ll make just one monthly repayment to pay the costs of your debt consolidation loan.
Why You Should Consider Consolidation Should I Consolidate my Debts?
Many people believe that consolidating their debts into one payment is a lot more convenient than having to repay debt from multiple sources. However, debt consolidation isn’t always suitable for everyone. If you have less than desirable credit, you may find yourself paying a higher rate of interest albeit if it is from just one source.
Why Should I Consider Loan Consolidation?
When considering taking out a loan to cover debt consolidation, you should take the following into account:
- Interest rates and representative APR. This could be the deciding factor as to whether or not you can afford to borrow the amount you need for debt consolidation.
- Whether or not you can afford to repay the loan. Consider whether you can afford to borrow the amount to settle all of your debts.
- How long you’ll be repaying for. If you are looking to borrow a large sum, then consider how long you’ll be repaying for and how this could affect your finances in the future.
- If you are currently struggling to repay any existing loans that you have taken out, then you may struggle to repay a debt consolidation loan.
Will it Impact my Credit?
Once you have used your loan to settle your multiple sources of debt, then you will find that this has a positive impact on your credit.
However, should you fail to keep up with the monthly repayments on your debt consolidation loan, you may be issued a fine or charge which will negatively impact your credit history.
If you do make your repayments in full and on time, clearing the balance of the loan, then this will further boost your credit.
Are You Eligible? Am I Eligible to Consolidate my Loans?
All of the lenders that we work with who offer debt consolidation loans will have different eligibility criteria which you will have to meet to be approved. However, these are the minimum requirements a lender will expect you to have:
Am I Eligibile?
- 18 years of age or older
- UK resident for the past three years
- In employment or with a reliable income
- With a valid UK bank account in your name
- Not in receipt of any County Court Judgements or bankruptcies
Can I get a Debt Consolidation Loan if I have bad credit?
Lenders will access your application by your ability to make repayments and evidence of how you have handled credit in the past. If you have struggled to make repayments on time, then this may cause a lender to feel dubious about your ability to make monthly repayments.
However, at iThink Finance, all of the lenders that we work with, take into account the many reasons why an applicant may have bad credit, considering personal circumstances when they access credit applications.
If you do have poor credit and are still struggling to make repayments, then you may be offered a loan at a higher rate of interest. If you are struggling to make monthly payments, then consider seeking debt advice
Advantages and Disadvantages Benefits & Drawbacks
As with any financial product, these loans aren’t suitable for all customers; therefore, you must understand both the advantages and disadvantages of consolidating debts before you proceed.
What are the Benefits?
- Take control of your debt. Settle your existing debts into one loan.
- Easier to manage. By consolidation your debts you, therefore, make it easier to manage, as you won’t have to worry about remembering repayment dates or amounts.
- Only pay one rate of interest. You could significantly reduce the amount of interest you have to repay.
- Positively impact your credit. By settling your multiple sources of debt and making your repayments in full and on time, you have the ability to improve your credit score.
What are the Drawbacks?
- If you have bad credit, you may not be able to borrow enough money to settle all of your existing debts.
- If you have poor credit, then you may have to repay a higher rate of interest.
- If you cannot afford the repayments, you may get yourself deeper into debt.
- You may have to pay Early Repayment Charge (ERC) if you wish to settle your debts early - which can be expensive.
Are There Any Alternatives?
- Personal loans. Taking out a personal loan could give you the opportunity to settle your debts.
- Repaying debts separately. You can also continue repaying your loans individually.
- Debt Management Plans. If you are struggling with your debts, then consider talking to your lender about setting up a Debt Management Plan (DMP).
- Balance transfers. Transfer the balance of your debts to a 0% interest credit card.
Why Choose Us Why Choose iThink Finance for Debt Consolidation?
At iThink Finance, we understand how difficult it can be to manage multiple sources of debt. Many customers struggle to remember repayment dates and the total amount repayable, however by consolidating those debts you could make your repayment process a lot easier.
Why Choose Us
We search our panel of over 30 different UK lenders to match you with the right debt consolidation company to meet your requirements. Apply with iThink Finance today and receive your free, no-obligation quote on a personal debt consolidation loan today. We are a broker, not a lender and specialise in comparing options to help you consolidate your debts. We charge absolutely no fees for the service that we provide.