Debt Consolidation Loan FAQs
Are you considering a Debt Consolidation Loan? Take a look at our frequently asked questions and decide whether this debt solution is right for you. Debt Movement can provide debt solutions, just contact us today and chat to one of our friendly team for guidance.
A consolidation loan involves obtaining a new loan to pay off existing debts to reduce monthly payments at a lower interest rate or to reduce the number of companies who are owed money. There is no debt forgiveness, and interest and charges will apply as per the contract of the consolidation loan. You may also have to pay fees for arranging the loan, and if you fail to manage payments, assets, including your home, could be at risk.
With a debt consolidation loan, you move all your borrowing, or a significant chunk of it, from a variety of locations onto a single loan. Rather than making lots of separate payments to different lenders every month, you’ll only have to pay your consolidation loan provider.
Secured and unsecured loans have different consequences for you and your finances. Therefore it’s crucial to understand the difference between the two.
A secured consolidation loan is when a debt is secured against your property or other assets. Whilst a secured loan is cheaper, if you cannot pay the loan back, the loan company may seek to recover the item the loan is secured against.
Unsecured consolidation loans (aka personal loans) are not secured against your property. If you fail to make payments on your unsecured consolidation loan, your credit rating will be affected.
If you keep up to date with all of your payments, a debt consolidation loan will appear like any other loan on your credit file, and, as long as you do keep up with your repayments, it may help improve your credit score.
If you miss a payment, a default will be added to your credit file which stays there for six years.
Debt consolidation loans aren’t right for everyone. It’s important to check all of the other options available and make sure you’re making the right choice.
While consolidating debt often sounds like a promising solution, this could make your situation worse, especially if you continue to use a line of credit (like a credit card) that you repaid with your consolidation loan. It’s also essential to make sure that you aren’t over-committing yourself, particularly if the consolidation loan you are looking at is secured against any of your assets. That’s why it’s best to get expert debt advice before taking out a consolidation loan.