Debt consolidation loans
Debt consolidation loans help you settle a number of separate debts so you can streamline your finances with one regular payment. Is loan consolidation right for you? Here’s all you need to know.
Compare Debt Consolidation
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SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT.
We compare loans that can be paid back over terms of between 1 and 25 years. The APR interest rate you’ll be charged depends on your personal circumstances, and will be between 3.2% and 99.9%
This is a representative example of what it may cost: a Loan of £7,500 over 60 months at 3.3% APR would equate to monthly repayments of £135.60, and the total cost of the loan that you pay back would be £8,136.22
Understanding debt consolidation
Debt consolidation could mean taking out a new personal loan to repay all, or some, outstanding debts such as:
- Credit cards
- Store cards
- Personal loans
Although your debts won't disappear, if you can afford the new loan repayments, merging them into one personal loan could reduce your monthly outgoings and help you better manage your outgoings.
How do debt consolidation loans work?
With a debt consolidation loan, you simply move all your borrowing, or a significant chunk of it, onto the one loan.
You can then close down the various credit card and loan arrangements you’ve had previously, using your consolidation loan to clear the debts. Rather than making lots of separate payments to different lenders every month, you’ll only have to make one to your loan provider.
With each separate existing loan you look to pay off, check whether there are any early repayment charges – and, if so, factor them into your calculations.
Most debt consolidation loans are unsecured, which means the lender can’t lay claim to your home if you are unable to keep up with repayments. That doesn’t mean you can be casual about paying what you owe, however – the lender could still pursue you through the courts for its money.
Be wary of loans which are secured, as this means that the debt is held against your property (or another asset), so if you’re struggling with payments, your home could be at risk.
Is a consolidation loan for you?
Advantages of consolidation loans:
• All your debts are in one place: You only have one interest rate to keep track of.
• Managing debt is more straightforward: You only need to make one payment every month.
• Your credit rating could improve: Once you close other credit card and loan accounts lenders can see that you are managing your finances responsibly.
Disadvantages of consolidation loans:
• You might end up with a higher interest rate: If, for example, you are transferring credit card debts across to a consolidation loan, you could end up paying more interest than if you moved these balances to a balance transfer credit card offering a 0% introductory period on balance periods for several months.
• Early repayment penalties: Some lenders will charge you a fee if you wish to pay off an existing loan before the end of its fixed term. Check your terms and conditions for details on how expensive such charges are.
Things to note when taking out a debt consolidation loan
When consolidating debts, work out how big a loan you will need and check the interest rate, as rates are usually tiered depending on how much you borrow. As a general rule, rates are lower the more you borrow, so if you are only just in a lower tier, it might make sense to borrow a bit more if that means you will pay a lower rate of interest.
If you think you might be able to pay off your debt consolidation loan early, check to see if there are any penalties for doing this. Remember that the longer you take to pay it off, the more interest you will pay overall.
Finding the right debt consolidation loan for you
There are lots of different loans to choose from if you are looking to consolidate debts, so always to plenty of research before applying for one to make sure you secure the best possible deal.
Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.