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What you need to know about secured loans for debt consolidation
What you need to know about debt consolidation
The economic climate means that many people are in a position where they have some sort of debt that they are trying to pay off. There are a lot of possible options out there from payday loans to guarantor loans as unsecured loans to secured loans taken out against your car or your home. While you may be desperate to consolidate your loans as soon as you can, you should still take the time to assess all of your options as they are not necessarily completely straightforward.
Get advice from experts
Secured loans for debt consolidation are not right for everyone, but they can throw you a lifeline if you are in a particular type of situation. Debt consolidation advisers and your broker can help you to build up a realistic picture of your current financial situation. They will be able to help you calculate the amount you owe, how much you need to pay each month in order to cut your debts and whether this is affordable for your circumstances. If you need to consolidate a large amount of debt, which could be from around £5000 all the way up to £1,000,000, then consolidating it all into one place could be the option you need.
As a secured loan against your home to consolidate your debts is effectively a type of mortgage you can also consult a second charge broker in order to identify all of the products that would be suitable for you. They will be able to take into account your loan amount, how much you are able to pay in monthly payments each month and so therefore will also be able to advise on a loan term, which could be up to 30 years.
Consolidation Loan Calculator - how much will it cost?
This calculator will give you an idea of costs. The exact amount and APR payable will be provided from the lender subject to credit and affordability checks.
Your monthly payment will be:
Interest on this loan will be:
Annual Percentage Rate (APR):
Total repaid will be:
Things to think about before taking out a secured debt consolidation loan
As you will be securing the loan against your home, should you miss repayments your home could be at risk of repossession, which means that you would lose your home. You should also understand that because of the length of these loan terms you will pay more overall than if you took out a shorter loan with higher repayments. However if what you need are the lowest monthly payments possible then this type of secured debt consolidation loan is likely to be your best option because they often provide you with the lowest interest rate so your monthly payments are affordable.
Use the loan to your advantage
A more affordable loan over the long term
One of the biggest pros of taking out this type of loan is the fact that you can bring your monthly loan repayments down to an affordable level. If you take advantage of this to its fullest and ensure that you don’t miss any repayments you will not only gradually start to pay your loan off, you also start to rebuild a good credit rating. The more disciplined you are the faster your score will rebuild and you might even find that you can start to save some money, which you could then potentially use to pay off a lump sum of your loan and then you can then use these as factors in the future to then improve your situation even further by potentially getting lower interest rates as you begin to represent a lower risk to lenders.
Why might I be eligible for a secured loan when I don’t qualify for other mainstream loans?
The main reason why you will find more options when looking at a secured loan rather than a personal loan is because of the risk you represent to lenders. A personal loan is unsecured and so because of your poor credit history you present a high risk, whereas if you take out a secured loan the risk drops massively because there is a definite way that a lender can recoup their loan should you run into trouble. However you should also note that this type of secure loan is only available to homeowners and so is not an option for anyone trying to consolidate debts who currently rents their own home.
Check out all of your options
The main piece of advice here is really to check out all of your options and make sure you understand the type of loan you are taking out, especially if you are securing it against your home.
Questions? If you're unsure which loan is right for you or you need some guidance on secured loans then speak to our experts on 0161 820 8099.
Their friendly advisors will be happy to discuss which options are available and to answer any questions you may have.