A consolidation loan is a loan you can take out in order to group all of your debts together and make one simple payment per month. It can be a good idea if you have accumulated balances on various credit cards, store cards and loans and you want to streamline your finances.
A consolidation loan will often offer you a lower monthly payment and a longer time over which to pay than credit cards or store cards. This could leave you with some breathing space as far as your monthly income is concerned and you could find yourself saving money too. There are many different lenders who offer these products. The following are some things you might want to think about before you start a consolidation loans comparison.
Be honest with yourself here. If you want to consolidate all your debts or even compare consolidation loans, you need to work out exactly how much debt you have on your various cards, loans and credit commitments and go from there. Make a list of what companies you owe money to and how much you have outstanding. This is one of the first things you will need for a consolidation loans comparison.
Look at your existing credit and consider whether the interest rate you are currently paying on each is more or less than the interest rate you have seen when you compare consolidation loans. If the interest rate you are currently paying is higher then you will save money on taking a consolidation loan.
Another factor that you need to consider whether there is any tie in period with your existing credit commitments and if so, will there be a charge for you to consolidate your debt into your new loan? If there is a charge, this may make a consolidation debt more expensive overall than keeping your debt as it is but make sure that you do the maths as you could still save money.
One last thing to look at is how long your existing debt is going to run for. If you will pay an individual debt off over the next few months, it may not be worth you consolidating this into another loan that may run for a longer term as this could cost you more in interest charges.
A secured loan is only available to homeowners. It is secured against the equity in your home. You will almost certainly be offered a lower interest rate for a secured loan as the loan company can repossess your property if you do not keep up the repayments. As such, they are taking less of a risk in lending you the money as they have a mechanism for getting it back. However, it means that you are taking a far greater risk as you could lose your home if you do not keep up the repayments.
An unsecured loan is not secured against your home, so it is available whether you own your own home or not. These loans can be more expensive than secured loans as the provider is taking more of a risk by lending you the money. However, you are taking less of a risk as you will not lose your home if you do not keep up the repayments.
An unsecured loan is typically available with a term between 1-7 years and a secured loan is usually available for a term of up to 25 years. This can make a secured loan seem cheaper as the monthly payment will be lower if the term is longer. However, you could end up paying more interest overall so it is worth crunching the numbers and thinking about how long you will realistically need the loan before you sign up for one or look at a consolidation loan comparison.
Another factor to take into consideration in deciding whether a secured or unsecured loan is best for you is the amount of money you will need to borrow to consolidate all your debt. Typically, a secured loan will offer you more money than an unsecured loan depending on the value of your home. Therefore, the more you need to borrow the more likely you may be to consider a secured loan rather than an unsecured loan.
If you are still unsure as to whether a secured or unsecured loan would work out better for you then our consolidation loans comparison technology can help you to identify potential options. You should always speak to a suitably qualified Independent Financial Advisor if you are in any doubt as to the best course of action. Remember that you could lose your home if you do not keep up the repayments on a secured loan.
Consolidation loans can work very effectively and save you a lot of money, but you need to think about what type of borrower you are before you commit to a loan or even begin to compare consolidation loans. Think about what you want to do with the money you have saved and the breathing space you have brought yourself. This could be the perfect time to start working on a budget you have set and to stop overspending. However, if you know you will use this extra money to indulge yourself, it isn’t going to help you in the longer term.
Once you have a more manageable financial commitment, you should be able to budget more easily and even have some money to set aside each month. Consider putting this money into a savings or even a pension plan and you will reap the benefits of your new comparison loan. Use the opportunity you have created to set yourself up for the future.
Consolidation loans can offer you a route to sorting out your finances, setting your budget and having fewer financial headaches in the future. Make sure you compare consolidation loans and do your sums carefully before you apply.