Debt consolidation, simply put, is the process of merging debts into one loan. In doing this, repayments can be simplified, stress can be reduced and the entire lending process can be streamlined extensively. There are two different forms of debt consolidation loan, each with their own unique qualities, depending upon your individual requirements.
Secured Debt Consolidation Loans vs. Unsecured Debt Consolidation Loans
As mentioned earlier, there are two different types of debt consolidation loans – secured and unsecured. Unsecured debt consolidation loans mean you do not have any collateral at risk should you fail to keep up with repayments. Secured debt consolidation loans on the other hand mean that if you are unable to repay your monthly payments, then you may be at risk of losing an asset such as your car or your home.
Here at LoanPig, we can offer short term loans which may be an alternative solution to a debt consolidation loan. They can act in a similar manner, but it is important to ensure that you have weighed up all of your financial options and affordability before applying.
A debt consolidation loan is a type of personal loan which can be taken out to help applicants to pay off a number of debts. For example, if a person had a £1000 store card, a £3000 credit card and a £1500 personal loan, they may take out a debt consolidation loan of £5500 to pay off all of their existing loans and have just one monthly outgoing instead of the three. In some cases, this can be a cheaper option than having a number of different debts if the interest rates are lower on their debt consolidation loan.
Pros Of Debt Consolidation Loans
The pros of debt consolidation loans are varied, and these types of loans are entirely dependent on the person’s individual situation.
Reduce Monthly Repayments
The best debt consolidation loans help to reduce your monthly repayments, particularly if you have a few outstanding debts which are accruing interest over time.
Lower Interest
In some cases they can have lower overall interest, with lower APRs that some short term loans and credit cards.
Keep Track Of Your Debt
With just one monthly outgoing, it is often easier for individuals to keep better track of their debts and monthly outgoings – managing one monthly payment is always easier than managing multiple.
Credit Score
If you are able to make your monthly repayments each month without fail, then you may see an improvement in your overall credit score, particularly if you were struggling with meeting your repayments on multiple debts.
Cons Of Debt Consolidation Loans
However, as with any type of personal loan or short-term debt, there are some cons to consider when it comes to taking out the best debt consolidation loans.
Missed Repayments
If you miss your repayments on a debt consolidation loan, as with any other loan type, then this can have significant financial implications and could affect your eligibility to borrow in the future.
Set Up Fees
Some of your existing creditors may charge early settlement fees or fees for transferring the balance of your loans, meaning the fees to set up your debt consolidation loan could be pricey.
Secured Against Assets
If you have a secured debt consolidation loan rather than an unsecured debt consolidation loan, then you may be at risk of losing an assets or collateral such as your home or your car if you’re unable to keep up with your repayments.
Debt Consolidation Or Debt Management
Debt consolidation loans are not the right solution for everybody, and some applicants may want to consider debt management instead. Debt management solutions are where you are able to make arrangements with your creditors, or in some circumstances may even have the debt written off. Debt management plans, bankruptcy, individual voluntary arrangement or debt relief orders may be a better option. You are able to gain free, impartial debt advice before going ahead with any debt solution.
Can I Get A Debt Consolidation Loan With Poor Credit?
If you are seeking debt consolidation loans UK but you have poor credit, then you may be concerned about your eligibility.
It is possible to take out a debt consolidation loan, but depending on your creditor, you may not always be presented with the cheapest deals. Your lender, particularly traditional lenders such as banks, will decide which type of loan and what APR % is most suitable to you based on your application, after checking your credit score and affordability.
If you have poor credit, then a secured loan may be recommended as opposed to an unsecured debt consolidation loan. Nevertheless, as with any form of credit, if you are able to keep up with your repayments and your affordability improves, then you may see a notable improvement on your credit score. However, debt consolidation loans UK and other loan types should not be taken out for the purpose of increasing your credit score.
At LoanPig, while we do check our applicants’ credit scores, we typically base our decisions on our applicants affordability.
Secured Debt Consolidation Loans vs. Unsecured Debt Consolidation Loans
As mentioned earlier, there are two different types of debt consolidation loans UK – secured and unsecured. Unsecured debt consolidation loans mean you do not have any collateral at risk should you fail to keep up with repayments. Secured debt consolidation loans on the other hand mean that if you are unable to repay your monthly payments, then you may be at risk of losing an asset such as your car or your home.
Here at LoanPig, we can offer short term loans which may be an alternative solution to a debt consolidation loan. They can act in a similar manner, but it is important to ensure that you have weighed up all of your financial options and affordability before applying.
How To Get A Debt Consolidation Loan With LoanPig
Apply for a debt consolidation loan through LoanPig will give you access to short term cash loans. Use our online calculator to choose your loan amount and length of your loan in months. We will be able to show you an estimated repayment amount based on our expert panel of lenders and once you are happy to move onto the next step, all you have to do is complete the application form. This process is quick and simple to apply for the best debt consolidation loans.
Debt Consolidation Loans FAQs
Do You Carry Out A Credit Check?
Whether we process your application or if our panel of lenders are a better option for your needs, we will carry out a credit check as part of the application process. However, our decisions are typically based on affordability rather than your credit score.
What Are The Alternatives To Debt Consolidation Loans?
There are a number of alternatives to debt consolidation loans UK such as 0% credit card transfers or other types of short term or personal loans. The loan type for you will depend on your affordability and your requirements.