Low Interest Debt Consolidation Loans
Information about low interest and cheap debt consolidation loans with the advantages and disadvantages of such secured and unsecured borrowing:
Low interest Debt consolidation loans are those that combine many other personal borrowing, credit card repayments, a mortgage, etc into one monthly repayment scheme over a set number of years. It will typically last from 5 to 25 years.
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These are the type of advertised by TV celebrities like Carol Vorderman and Phil Tufnell who in reassuring voices tell you how easy it is to put all your borrowing and bad credit into one easy to manage monthly repayment. What they do not tell you is that the monthly repayment may well be smaller and easier to pay but it will last for longer.
This is why the monthly sum is cheaper than normal borrowing - they can be spread over 25 years and the actual amount to be repaid can be far more than normal interest on normal borrowing, mortgages or credit card payments. This can be a major disadvantage, though the biggest advantage is that those on low incomes, have no job, are on social security benefits, have a history of bad credit, have or had a CCJ (County Court Claims and Judgements), are self employed, retired, a mature student or find it difficult to manage their finances can seem to easily repay such low monthly figures in one easy to manage amount if they do not mind paying over a long period and having to pay more interest.
Typical amounts can be from £5000 to £10000 or £20000 and even up to £50000 or £100000. It can be tempting to borrow a bit more, perhaps for a holiday or fitted kitchen or carpets, but this can keep you owing for longer and the temptation should be avoided. It is best to borrow the minimum.
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There are two types:
Unsecured Debt Consolidation Loan
This is ideal for those who do not own a home or have a house on a mortgage or do not own a car or a business. An unsecured debt consolidation loan does tend to have a higher interest rate charge because they are much riskier for the lender, ie they cannot send in a bailiff or collection agency to repossess something the borrower owns so that they can sell it to recoup some of their losses.
Secured Debt Consolidation Loan
When you borrow from a bank, building society or other lender they usually ask for security against it. This is security for the bank against the risk. It is normally tied to an asset such as a house, flat, bungalow or other building. Because it is tied to an asset that needs to be checked for proof of ownership, condition and valuation these can take a little bit longer to process but they are usually a low cost option when compared to other options.
Once the property has been evaluated the borrower can often secure a higher amount or a longer term based on the equity on the home. So someone who has been paying a mortgage for a longer time can usually secure a greater value of secured debt consolidation loan because there is more positive equity in the property.
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Cheap Debt Consolidation Loan
It is tempting to opt for a cheap debt consolidation loan in the UK and fill in the application form or online forms straight away but do shop around. Do not tie yourself down for many years within a few minutes. Even if you are desperate or unable to borrow from local banks such as Barclays, The Royal Bank of Scotland, HSBC, Natwest or First Direct - shop around and get the best deal. Look online with various companies and see at examples of their calculators and tools.
It could be a better option than facing bankruptcy or the bailiffs repossessing your property and items of value and the consequences of being made bankrupt or homeless.
Do follow expert advice and read as much about them before choosing. Consider the starting rate APR and the typical APR of each company and the number of years of repayments which can range from 5, 10, 15, 20 and 25 years.
Some borrowers consider this a better way to mange their money and just have one lender. They feel that this may repair their negative credit rating scoring and in the future give them a better credit rating for future borrowing and financial purchases. If this appeals to you just do not borrow any more until this has been repaid - and tear up, cut or shred your credit cards.
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The major con is that the small monthly repayment figure can tempt people to spend more money because they think they have more money by consolidating. This is a major temptation to continue spending more money that they cannot really afford or expect to repay. Lenders will baffle or tempt you with case studies and give examples of interest rates, usually of someone who sounds like you or were in your position, and give an example of their low monthly repayments. Such figures are a trick of lenders so overcome this and take your own calculator, notepad and pen and work out your own figures before signing an application form or agreement form.
Overcome these disadvantages by taking some steps to avoid what some people may see as a scam. First of all sit down and work out your monthly income and any other payments then balance these against any outgoings such as rent, mortgage, grocery bills, council tax, utility bills like electric and gas, etc. Do make sure you have included every expense though to avoid any sudden bills. For example include your yearly MOT, car services, wedding or social occasions, mobile phone bills, clothing spends, Christmas gifts, birthday presents, etc. Take off about 20% of the remaining sum for emergencies, home repairs, etc and then this final figure is what you can afford to comfortably repay each month.
This is the advantage - you can, with the right provider, set the amount you can afford. But the disadvantage that I shall repeat so soon in this article is that the actual interest you will eventually repay can be far higher than other loans that are already taken out. You will also be in debit for longer, though some people will be attracted by the low monthly repayment figure and live for today and worry about tomorrow another day - a bit like an ostrich burying its head in the sand!
Do not be tempted to rush. Read the paperwork carefully, add up the figures and estimate what your whole bill will eventually be when you finally make the last payment. And sleep on it. Make the decision at least the next day so that you have had time to think about the pros and cons. Do not be tempted by scams like discounts for signing forms the same day or getting something for free. These are designed to put the pressure on you or entice you to sign up to the service without really weighing up the pros and cons.
Visit websites and compare the figures and terms and condition of each site. Try and do this without revealing any personal details like your name, address and especially your telephone number and e-mail address. Some sites will try and get you to take out their product as soon as possible. The hard sell can come by phone or e-mail and you can feel pressured into making a decision. Take your time and shop around for the best deal.
Credit Card Consolidation Loan
Credit cards are great for making everyday buys, impulse purchases, booking holidays, etc. If you can repay the whole amount each month then charges can usually be avoided or minimised. Though those who can pay off the minimum monthly charge will incur some charges but those who spend spend spend and cannot afford to pay will be hit hard. This is where credit card companies make their money. If you are reading this article and you owe a lot - CUT UP YOUR CREDIT CARD NOW! This will help stop you adding to your troubles, though you still have to pay off this. And please do the same with any store cards whose interest rates can be just as high.
The average APR rate for a credit card is anything from 15% to 25%. This builds up each month. A credit card consolidation loan can be tempting and can help you pay off your credit cards though will leave you with one more loan to repay. The average consolidation loan typical variable APR can be between 9% and 15% but do remember you will be repaying this off for up to 25 years though a minimum of 5 years can be made available. However this can be a cheaper option to repay. Just do not be tempted to take on any more credit cards. Pay off the loan first.
With a bit of juggling though a credit card consolation loan may be avoided if you transfer to 0% balance transfer credit cards with low APR though the danger here is holders may be tempted to spend more money with new credit cards. It may at least focus their attention to repaying and reduce interest rates.
Debt Consolidation Mortgage Loan
A debt consolidation mortgage loan would not normally be taken out by home buyers but some people, like those listed at the beginning of this article, may have no other choice if they want to become a home owner. They are also suitable for people who wish to re-mortgage a home to secure extra cash, perhaps for home improvements, a luxury holiday, to pay for a funeral, wedding, etc. It may also be an option for someone who is trying to get their life back on track after difficult financial and work times.
For an existing home owner it is usually estimated on the amount of the existing mortgage that has already been paid balanced with any positive equity.
Please do remember that with any loan taken out with a home as security that home can become repossessed quite legally by the lender or their agents if you do not keep up the repayments of any mortgage or loan that has been secured on the home.
Debt Counselling
Most services are free, though do avoid those who are part of a loan company. Their hidden agenda may be to get you to take out their product whilst making it sound like advice and counselling. Seek out an impartial service. Start locally at your Citizen's Advice Bureau where they will give you impartial debt counselling or can refer you to another person or agency. Be honest. They will not judge you but will be there to help you and offer impartial, confidential advice and suggestions to help you get out of any problems. Solutions will not be made overnight but they can help you pay things off, often in many years time and give you help and support to avoid it in the future.
This page does not form any financial advise and is published for information only. It is strongly recommended that you seek expert and qualified financial advice before committing to any financial product.
