How Debt Consolidation Loans Work
Who is a Debt Consolidation Loan For?
Debt Consolidation Loans in UK are for those who are planning to reduce their debts into one manageable payment.
In short, a debt consolidation loan is the one that helps you pay off your previous debts and transfer it into one manageable monthly repayment. You need to still repay the money, but the amount you need to pay on a monthly basis will be simplified.
Moreover, it has a lower interest rate compared to your previous debts, and also the monthly outgoings are reduced.
Benefits of Debt Consolidation Loans
Debt consolidation loans can easily help you manage your spending. Here are the ways how it can help you:
- Reduced Monthly Payments: By spreading the term of debt to a longer time frame, you can reduce the monthly repayments. Most of the time you pay only the ‘minimum payment’ on your existing debts which actually helps you clear off the principal amount as well.
- Improves Credit Rating: If your debts are with the credit cards that have a high rate of interest, you can pay back less interest rate on your debt with the consolidated loan. In short, it has a positive impact on your credit rating.
- Reduces the Rate of Interest: If you have debts on your credit card or store, you pay a higher interest rate. Whereas, if you are clearing your debts with the consolidation loan, the interest you pay back is less.
- Easier to Keep Track of Your Debt: It is pretty easy to make one repayment monthly than paying multiple debts in a month. So, debt consolidation cuts down the headache of making multiple repayments in a month and converts it into a single payment.
How to Get a Debt Consolidation Loan?
To know if you are eligible for the debt consolidation loan, you need to always check the credit risk and also how much debt you already need to pay.
If you already have a history of bad credit, then the lender might prefer to give you a secured loan.
For this, you need to use your property as a security against the loan, which will help to reduce the risk for the lender. In case, if you are unable to pay back the amount on time, your property will be at risk.
Many personal loans can be used to consolidate debts. In most cases, lenders will look at
- Credit history
- The amount you would like to borrow
- And also how long it would take you to repay the loan
Where to Get a Debt Consolidation Loan With Bad Credit?
If you are having poor credit and looking out for places to apply for debt consolidation, then here are some of the good places where you can start the search:
- Local Banks
When you apply for a personal loan, local banks usually check your credit, just like any private lender. Fortunately, if you have any good relationship with the local banks, the executives would be willing to offer you more personal loans compared to the private lender.
Even before you apply for the loan, you can check with the loan officer and know what all things their bank looks for before approving a personal loan for you? This way, you can get a clear understanding of your eligibility criteria, and also the interest rate charged by the bank.
- Online Lenders
Online lenders are another best alternative to look for if you are planning to get immediate consolidation loans.
Here are some advantages when you are looking out for an online lender:
- Compare the rates without affecting your credit scores
- Apply easily and get quick approval
- Can expect funds within a week
Most of the online lenders are flexible to provide debt consolidation loans for people with bad credit. However, the APR they charge is pretty high compared to the banks.
In case, if you fail to repay the loan on time, they might even sell your property which is used as security. So, the risk involved in getting consolidation loans from online lenders is higher than the banks.
I hope, this article has given clear information on how to get a debt consolidation loan as well as the benefits of debt consolidation loan compared to the traditional debts.