Debt Consolidation Loans: Everything You Need to Know

A debt consolidation loan can be a straightforward, effective way to simplify your current debts and make managing them easier. When you have a lot of different types of debts that you need to repay every month, it might at times, become unmanageable. They may be coming from different banks with different times of payment each month.

Debt Consolidation Loans

Debt consolidation loans in UK works by consolidating all or most of your existing debts into a single loan amount with a single lender to pay off, preferably at lower interest rates.

Difference Between a Personal and Debt Consolidation Loan

In reality, a debt consolidation loan is a sort of personal loan and has all the associated perks: they’re frequently at a hard and fast rate of interest, paid off over a specific term, and frequently comes with the flexibility to repay early if you want to.

But, not totally all lenders offer debt consolidation loans and will ask you everything regarding how you plan to utilize the amount of money. You must answer all relevant questions from the loan provider honestly.

Alternatives to Debt Consolidation Loans

The main alternative to debt consolidation loans in the UK is known as a balance transfer card. Rather than taking out a loan, using that to pay off your existing loans, shop cards, and credit cards, you move the balance onto a brand new credit card, ideally one with minimal interest rate.

This can frequently be attractive. Some providers even offer long interest-free periods for borrowers with a good credit score. However, there’s usually a fee payable in advance (often a percentage of the amount transferring), so you should be sure that this fee doesn’t cancel out the saving you’d otherwise be making.

Both choices could work well, so it’s important to do your research. It is also worth noting that there are two kinds of debt consolidation loans: unsecured and secured. Secured loans (also called homeowner loans) are secured against your home, and therefore your house is at risk if you fail to make your repayments. They’re riskier, but may be used to borrow larger amounts of money and may even be available to borrowers with lower credit scores.

Unsecured debt consolidation loans aren’t linked to your home, and therefore they’re safer for borrowers.

Which Types of Debts Can You Consolidate?

Debt consolidation loans are pretty flexible, and they could be utilized to consolidate lots of kinds of debts, including:

  • Credit cards
  • Shop cards
  • Personal loans
  • Home improvement loans
  • Current account overdrafts
  • Payday loans

Does a Debt Consolidation Loan Affect Credit Score?

Yes, but perhaps not the way you’d expect. Although it can create a dip in your credit score, however, always keep in mind that steadily paying off your debts is among the best things that can help you with your credit score. So, in cases where a debt consolidating loan helps you maintain control of your finances and it is paid by you off in full and on time, you should get a boost in your credit score.

So, as you see debt consolidation loans in UK are a pretty straightforward way to manage different types of debts. If you are looking to consolidate your debts, you can always approach us for the best services.