A debt consolidation loan is a replacement loan granted to an Applicant to repay all existing debts (loans, credit cards, store cards etc). The Lender providing a debt consolidation loan charges a lower interest rate than credit and store cards, and the debt consolidation loan is repaid over a longer period of time (the repayment term). The lower interest rate charged by the Lender combined with a longer repayment term produces a monthly payment which can be significantly lower than the combined monthly payments of smaller loans, credit and store card debts. A debt consolidation loan can be granted either on an unsecured basis, or a secured basis (second mortgage) against a property owned by the Applicant.

How Debt Consolidation Works

Lenders make profit by lending money over a period of time and charging interest to the borrower for doing so. The larger the loan borrowed, and the longer repayment term produces more profit for a Lender. In return for the Applicant’s commitment to a longer repayment term a Lender can charge lower rates of interest (typically 6.9% to 8.9%) than most credit and store cards (typically 17.9% to 29.9%).

When is Debt Consolidation Suitable

A debt consolidation loan made available on either a secured or unsecured basis can be suitable for Applicants with multiple high interest debts requiring significant monthly repayments. If an Applicant is able to display to the satisfaction of a Lender that he/she/they can afford to consolidate, and will reliably commit to make the required monthly payments, then a debt consolidation loan can often be a solution to existing debt repayment difficulties.

What to Consider

• Make sure the monthly payments for the proposed debt consolidation loan are affordable. Prepare a monthly budget to confirm the amounts of funds on a monthly basis after essential living expenses (e.g. rent, bills and food, etc).
• Interest rates charged on loan consolidation debts may be higher than normal if a credit rating has been affected by late payments.
• Be careful not to continue to build up other types of debt such as credit cards and overdrafts. Your home can be at risk if repayments of a secured debt consolidation loan are not maintained.

• Many high street lenders offer competitive rates for personal and secured loans on both a secured and unsecured basis. Current account holders always firstly approach their banks for information on current offers. There are also Internet websites which compare current loan offers from all major lenders.
• Alternatively, if a debt consolidation loan is not available AdviceonDebt.net will be able to provide advice on and arrange a suitable alternative solution.