Debts can disturb you until you clear them off. There are several ways of clearing debts and one of them is a debt consolidation loan. It is a personal loan that you borrow to repay your current debts. This is a financial tool that allows you to combine all your existing debts into one. That means for all the other debts that you have, you can make a single repayment. People often assume that their current debts will be written off automatically if they take a consolidation loan. However, this is not true. Your current debts are not written off, rather you combining your debts into one.
If you are thinking about whether it is right to borrow a loan to pay off your debts, ensure that you read till the end. It will help you in making a firm decision.
Representative Example If you borrow £20000 over 72 months, your representative APR will be 22.90% APR. Your monthly repayments will be £488.36 and the total amount repayable will be £35,161.92. Representative Example If you borrow £20000 over 72 months, your representative APR will be 22.90% APR. Your monthly repayments will be £488.36 and the total amount repayable will be £35,161.92. Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00 Representative Example: Loan Amount: £20950.00, Loan Term: 85 Months, Interest Rate: 23.00% PA Variable. Monthly Repayments: £537.44. Total Amount Repayable: £45,682.15. This example includes a Product Fee of £2,095.00 (10% of the loan amount) and a Lending Fee of £714.00 Representative example: If you borrow £3000 over 36 months at a Representative rate of 47.8% APR and an annual interest rate of 39.7%, you would pay 12 monthly installments of £143.84. The total charge for credit will be £2178.24 and the total amount payable will be £5178.24. Representative example: If you borrow £3000 over 36 months at a Representative rate of 47.8% APR and an annual interest rate of 39.7%, you would pay 12 monthly installments of £143.84. The total charge for credit will be £2178.24 and the total amount payable will be £5178.24.Maximise your options: Compare and apply for loans below with LoanTube
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Loan Amount
£4000 -
£20000
Norwich Trust
Loan Term
1 -
10 years
4.8/5
Representative APR
22.9%
Minimum Age
21 Years
4.8/5
Norwich Trust
Loan Amount
£4000 -
£20000
Loan Term
1 -
10 years
Representative APR
22.9%
Minimum Age
21 Years
Minimum Income
£2000 per month
Loan Amount
£5000 -
£100000
Evolution Money Loans
Loan Term
1 -
20 years
4.5/5
Representative APR
28.96%
Minimum Age
18 years
4.5/5
Evolution Money Loans
Loan Amount
£5000 -
£100000
Loan Term
1 -
20 years
Representative APR
28.96%
Minimum Age
18 years
Minimum Income
Not mentioned
Loan Amount
£1000 -
£10000
1Plus1 Guarantor Loans
Loan Term
1 -
5 years
4.4/5
Representative APR
47.80%
Minimum Age
18 years
4.4/5
1Plus1 Guarantor Loans
Loan Amount
£1000 -
£10000
Loan Term
1 -
5 years
Representative APR
47.80%
Minimum Age
18 years
Minimum Income
Not mentioned
What are the advantages of a debt consolidation loan?
Living with debt can be stressful and before you consider taking out a debt consolidation loan, weigh the pros and cons. Here are a few advantages of consolidating your debts:
· Budget tracking
You will have to follow a simpler repayment system as you are likely to make only one repayment every month. Repaying multiple debts can make it difficult for you to keep track of your budget. So, you do not have to remember various dates, set a single repayment date to ease off the burden of memorizing.
· Save money
If you get a debt consolidation loan at an interest rate that is lower than the combined interest rate of all your debts – then you can save money. The monthly repayment amount that you have to pay each month will be lower than what you are paying currently.
· Easy repayments
You do not have to make a lump-sum payment. Instead, you can spread the cost of your repayment over several months. Typically, lenders may offer you a maximum period of 7 years if you are borrowing a personal loan for debt consolidation.
What are the risks of a debt consolidation loan?
There are some risks associated with a debt consolidation loan that you should consider before deciding to use it. Listed below are a few potential disadvantages:
· Add more debt
If you fail to repay this new loan that you have taken out to service all others – you are adding more debts to your pile. So, you must take a debt consolidation loan only if you are sure of making all the repayments on time.
· Higher rate
You may get a consolidation loan at a rate that is quite higher as compared to the combined interest rate of your debts. If that’s the case, you will end up paying way more than you had borrowed.
Which is better – Debt Consolidation or Debt Settlement?
- Debt consolidation and Debt settlement are two different ways of clearing debts. They have their own set of pros and cons. Undoubtedly, both of them are great for financial relief – however, choosing the one that you need may depend on a variety of factors.
- With a debt consolidation loan, you will have to repay the entire debt that you owe to your creditors. Your existing loans will be rolled into a new one. Most of the consolidation loans are tied to your assets. If you choose a secured debt consolidation loan, ensure that you will be able to pay it off successfully. If you are not sure about the repayments, it’s better to go with an unsecured debt consolidation loan. Your credit score will improve when you pay the entire debt.
- While, with a debt settlement, you will not get an option to replace your existing debts. It is more of a negotiation with your loan providers to cut back the money that you owe to them. Your total debt will be “settled” against a part of what you owe. You will be asked to make the repayment in a single shot or the creditors may allow you to make repayments in instalments. When you settle your debts, your credit score is impacted.
- All these options may seem attractive when you are dealing with debts. Assess your financial condition and opportunity cost before taking any decision.
How long does debt consolidation stay on your report?
- If you take an unsecured debt consolidation loan in the UK and you make regular repayments – it will build your credit score. But if you cannot keep up with the repayments, your credit score will be impacted. If you take a debt consolidation loan to pay off your credit cards – you are consolidating revolving debt. It will reduce your credit utilization ratio. A low credit utilisation ratio boosts the credit score. (Credit utilization is the ratio between the available credit you have and your monthly credit usage.)
- You can consolidate several types of debts by using a personal loan. Be a responsible borrower and take out money only when you can afford the repayments on time and in full. Rolling multiple debts into a single one is an easy way to get rid of debt. Prepare a repayment plan before you decide to borrow so that you do not end up adding more debts.
