A debt consolidation loan allows you to pay off all your existing debt with one existing loan. You borrow money from one single lender and merge all your existing debts into one monthly repayment.
Debt consolidation loans can be used to pay off debts such as other personal loans, overdrafts and credits cards. While there are no top loans per se, but there are some things to look out for that will help you find the best option for you.
Most debt consolidation loans are secured loans, meaning they are only available to homeowners. However, there are unsecured consolidation loans that are not secured against anything you own such as your home or car. You typically can get an unsecured debt consolidation loan for up to £25,000. Debt consolidation loans in the UK are usually offered for between one and five years. Though some do loan terms of up to seven years if your debt consolidation loan is over £10,000.
Debt consolidation loans can help you to reduce your overall monthly payments and simplify things by only owing money to a single lender. It can also be cheaper to pay off your debts with a debt consolidation loan. However, it very much depends on the rate you are offered. In some cases, it could cost you more in the long run and take you longer to pay off. You may also have to pay fees to pay off your debts early.
When considering debt consolidation loans there are few things to consider toensure you get the best one for you. First, you should decide how much you need to borrow, by adding up the debts you want to pay off with the debt consolidation loan. Then you should decide how long it will take to pay it back. The longer you take it back, the lower the monthly payment for your debt consolidation loan will be, though you will end up paying more back overall with the longer you take to pay it.
You also want to seek out the lowest interest rate. Interest rates are the biggest cost of a debt consolidation loan, so the lower the rate the better. The interest rate will depend on your individual circumstances such as your credit history and income. Lenders may advertise their representative APR, but this is only what they promise to give 51% of borrowers, so the rate you are offered may be different.
Debt consolidation loans can be worth doing, but only if you get a better interest rate than you are currently paying on your other debts combined. It is worth looking into different debt consolidation loans and getting a personal quote from each lender and comparing interest rates. Some popular debt consolidation loans in the UK include the Post Office Personal Loan, the RateSetter Personal Loan Semi Exclusive and Freedom Finance Personal Loan.