Debt Consolidation Loan
If you are making monthly repayments to a number of different lenders for credit cards, hire purchase agreements, and unsecured personal loans, combining all your repayments into one easy monthly payment could save you money and simplify your life.
Anyone who owns their own home, and debts to a number of creditors should consider taking out a debt consolidation loan secured against their home. Secured loans offer a much lower interest rate than credit cards and store finance, which means that you can repay your debts much faster, and with a lower monthly cost.
When you borrow money on a credit card or hire purchase agreement, the lender will typically charge a higher APR than you would get on a secured loan. Some suppliers can charge more than 15% interest on borrowing on a credit card. This means that for every hundred pounds you borrow for 12 months, you must pay back £115. With a secured loan, rates are much lower, sometimes even less than half of the rates for other forms of borrowing. This means that the cost of borrowing on a secured loan is much lower, which means that you can pay back less each month but still pay back your loan as quickly.
The reason why secured loans have a lower interest rate is simple. When you borrow money against the equity that you have in your house, the lender is guaranteed that they will be able to get the money back if you are unable to pay, whereas if you fail to make repayments on a credit card, the lender will struggle to recover your debt. The risk to the lender is much lower on a secured loan, and consequently, they charge less to borrow the money.
With consolidation loans you take out some of the value that you have trapped in your house, and use it to repay your debts. With one simple move, you can rid yourself of a number of creditors, and combine all your borrowing into one simple to manage account.
Because the money that you borrow on a secured loan is based on the amount of equity that you have on your house, if house prices rise, the share of your property that you are using to fund the loan will actually go down, and consequently, the loan will cost you less in real terms.
The main advantage of debt consolidation loans is that they allow you to free yourself from the high interest borrowing cycle that costs you a lot of money in the long term. High interest means that you are paying more, while if you are able to get a secured loan, you can save money on your repayments. When taking out a secured loan, it is also possible to extend your borrowing to allow for home improvements or other essentials at the same time, allowing you to get the things that you want without having to save.